Money Mantra - Money Matters

  To provide financial security to the family, earning member insures himself for his life. The insurance company compensates financially to his family on untimely death by discharging a lump sum fund to the dependents. The fund received by the family, against death benefit, depends upon the insurance coverage taken. Hence, the financial security of the family is decided by the insurance coverage adopted. In case of its inadequacy, the family might face financial discomfort. Therefore, determination of the adequacy of coverage value of any life insurance is very important. Normally the coverage value of life insurance is assessed in the following ways  – 1.        Just by gut-feeling 2.        Based on the suggestion by the insurance policy seller 3.         Advice from Relatives/ Friends The coverage values decided by any of these processes do not follow any structured process to determine...

  The basic objective to buy a Life insurance policy is to provide financial security in event of the demise of an insured member. This is achieved by insuring the financial liabilities that an earning member is expected to deliver over his/ her entire earning phase. The policy is expected to compensate the loss of earnings, in event of loss of life, during the policy tenor (against the death benefit). Therefore, it is a PROVISION (made against loss of futuristic income), and shall NOT be treated as an investment (which is to earn returns).   When trying to evaluate this, due to the expectation of direct returns, our selection tends to be biased. For example, Hybrid life insurance policies, offering returns in addition to life insurance, have become very popular because of such features. Our inclination to earn returns, under lucrative offers, easily diverts our focus from 'building a provision' to 'earn returns'. Since investment & insurance have different object...

  We have been adopting investment in bank & post office deposits as a default option without giving it much thought. At a time when interest rates were lucrative, the necessity of such analysis was also never felt. However, with the declining trend of interest rates, achieving financial targets might have become difficult. Reviewing fresh investments, adopting course correction in existing ones, and appropriate action can help achieve financial targets. The interest variation is also a risk that can hit our preconceived financial targets. The illustration below will shed some light on this aspect. Mr. Ram & Mr. Lakhan, both started creating their children's education fund in 2010. They set the target of Rs. 30 Lakh by 2025. Accordingly, they invested Rs. 9 Lakh in 5-year bank deposits. The rate of interest over 8.5% PA was good enough to catch the target in 15 years. However, at renewal, interest rates fell to @7.5% PA in 2015. Mr. Ram understood the interest variation r...

Creating corpus for our children's wedding is not something new for all of us; but as time has progressed, there have resulted in many societal and cultural changes. Thus in such a scenario, the traditional way to estimate fund requirement is no longer effective or useful. The success of the ‘wedding corpus’ depends solely upon its adequacy to conduct the event successfully, and in line with expectations driven by the prevailing culture. Hence, it is clear that the importance of societal and cultural changes creates an undeniable impact on this ‘wedding corpus’. This blog shall discuss the same in detail, which is the social & cultural shift that has occurred with respect to weddings, and how that, in turn, affects our outlook towards the “wedding corpus” estimation. A note of caution, the changes being enlisted and observed currently are dynamic in nature and hence are subject to change over a period of time. Thus, when it’s the turn of your kids to get married, there may oc...