Advertisements

When Does Buying A Term Insurance Makes Sense ?


Basically there are just 2 types of life insurance products anywhere in the world, though there are endless variants of both these types :

1.Term Insurance

2.Endowment Plans.

The second kind has a savings/investment component, the first doesn’t.

An oft repeated thumb-rule in the financial advisory trade, is to generally recommend that clients simply buy term insurance for their protection needs and look to mutual funds etc. for their investment needs. Combining protection and investment, according to this school of thought ,leads to sub-par results on both fronts.

My advice is a bit more nuanced. As long as a person can afford it, I recommend certain Endowment Plans, such as the now withdrawn Whole Life Policy of the LIC , over Term Plan+ MutualFunds or Term Plans+ PPF etc. I believe that such plans make for excellent investments returns-wise and tax-wise and allow people to enjoy predictability and stability in their wealth portfolio over many decades. Along with the flexibility to change plans as and when required.

However, I do believe that Term Plans have an extremely important place in one’s finances. Following are situations when you must absolutely opt for Term Plans:

1.If you are a wage/salary earner with a large number of dependents and have no large income from assets or businesses ,no stock-pile of assets that can be cashed in or otherwise tapped to provide for your dependents, the first thing you must do is sit down with a term insurance calculator and figure out just how much money you need to somehow find the money to afford the term insurance you need to provide for your dependants in case of your sad demise. You are ultimately their only hope for a better future.

2.Should you decide to become self-employed, or tap into assets such as your home to borrow the money to set up a business, make certain you have enough Term Insurance to cover your loans and business liabilities, especially if you have not thoroughly segregated your personal and family assets from your business assets.

3.Adequate keyman insurance for personnel crucial to the survival of your business.

4.If you are taking out  huge mortgages to finance home purchases, you can consider a term insurance to cover repayment in case of your demise. However, I find that mortgage insurance/home-loan insurance often works out cheaper and is often available to older people who might no longer be eligible for Term Insurance or larger sum assureds in case of Term Insurance.

So Term Insurance has its time and place in your financial life. Use it wisely as needed.

 

Advertisements

Mistakes To Avoid When Looking For Home Loan


Home Loan ChecklistBuying a home is one of the biggest decisions we can make in life. It is our single largest commitment in our lifetime. However, for people who are not financially ready, the process of obtaining the right type of home loan from banks is always a challenging task. If you can’t get proper financing, you may end up paying thousands in interest payment alone to the banks. If you will not take time to avoid these mortgage mistakes or if you have not been educated on what you should be doing to take control of your destiny as far as getting a home loan is concerned, you will end up losing your hard-earned money in the process.

If you are planning to invest, structuring a mortgage financing correctly is an even more difficult task because this may mean the difference between profit and loss. Below are the most common home loan mistakes that you need to avoid. Also check this checklist for home buyers by the Department of building and housing NZ. Read more of this post

Some Real Estate Facts To Mull Over


wealthymatters.com(1)Long term returns from residential real estate

Robert Shiller, by tracking the US home prices data from 1890 concluded that in the longer run, property prices grew at an annualised return of around 3%, just keeping pace with inflation.Housing price rises could not outstrip inflation in the long term because, except for land restricted sites, house prices would tend toward building costs plus normal economic profit.

I have no such data for India.But here is what I can attest to:an ancestral house acquired 120 years ago for 6000 Rupees is now valued at 1.2 crores-an annualized return of about 6%.I think this is close to the long term inflation rate in India.

 

(2)Is home ownership all that it is touted to be?

In a poorer country like Bangladesh, 90% of the houses are owner occupied. Whereas in a richer country like Switzerland, only 33% of the houses are owner occupied.

Europeans are more comfortable with renting compared to Anglo Saxons and we Indians need to decide whose model we choose to follow.Read what Niall Ferguson has to say about property ownership. Read more of this post

%d bloggers like this: