jagoinvestor ebook-for-idfc
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Collection of 8 best personal finance articles for young investors | www.jagoinvestor.com
JagoInvestor
Ebook
A Collection of 8 best articles from www.jagoinvestor.com
For
IDFC Foundation
Collection of 8 best personal finance articles for young investors | www.jagoinvestor.com
Content of this Ebook
1. First 5 yrs of your earning life ?
2. What is your Money Personality ?
3. Four amazing things you can learn from Cricket
4. The EMI Disease
5. T
6. Nine most asked questions about Term Insurance
7. 17 Most asked questions in Health Insurance
8. 11 qualities of a Right Financial Advisor
About JagoInvestorTM
Jagoinvestor.com is one of the most read personal finance blog in India focusing on Financial Literacy.
There are more than 500+ articles on this blog and a huge community of investors who love it for its
quality content and simple writing approach. Manish Chauhan is the founder of the blog and has also
published a personal finance book with CNBC 18 as publisher called Jagoinvestor --- Change your
relationship with money
About this ebook
This ebook is especially created for a young people who are fresh out of colleges and their career and
now ready to enter the new phase of life, where they will earn money from their jobs. This ebook will
help them get started by helping them understand some basic investment terms and terminologies
and also help them go in right direction.
Most of the young people get into job and they are so excited and full of energy to spend that money
but only later in life they realise they should have also thought and planned their financial life a bit to
save themselves from the future financial issues. Hence this small ebook will act as the passive guide
to them. This ebook also teaches them about some basic financial products and how they should
move ahead in their starting years.
This Ebook is created for IDFC mutual fund solely for their financial literacy initiative and the copyright
of the content remains with Jagoinvestor.com . No part of this ebook should be used for commercial
purpose or other than its permitted use by any company.
Manish Chauhan
www.jagoinvestor.com
Collection of 8 best personal finance articles for young investors | www.jagoinvestor.com
1. First 5 yrs of your earning life ?
A lot of people complain that they do not have much wealth in their life despite earning from
many years. This brings an important points in question. What did they do in the first 5 yrs of
their earning life? Its very clear that the first 5 yrs of your earning life leaves a very big impact
on your future financial life. Your financial life shapes a lot due to the first 5 yrs of your financial
life.
There are 3 possibilities
A person has saved & invested maximum of his earned money in first 5 yrs
A person has spent a lot of his earnings in the first 5 yrs.
A person has kept balance between his spending and investments/saving in first 5 yrs .
Are you one of those who started young with a nice paying job, but did not focus on your first
5 yrs or are not focusing on it right now. You feel future is so promising and your
times people are seriously unaware and ignorant that life turns out very differently then they
think.
There are many events which demands money and attention at any cost. These are some times
unplanned or just popup in life if you had not planned for it before --- like Job loss, Marriage,
Sudden health related expenses etc etc. The moment these events happen or come near, then
you realise
Oh my god --- I never planned for it or I underestimated how much money I will need .
In my book Jagoinvestor there is a chapter where I explain how your first 5 yrs investments, out
of a 30 yrs period makes the 50% final corpus and rest another 25 yrs makes another 50%
corpus. That means the initial 16% tenure makes 50% corpus and later 84% tenure builds rest
50% corpus - (read sample pages)
So if you are 5 yrs late in saving and investing for your retirement --- You will end up with 50%
less in your retirement --- This might not sound too scary, but it is . This could means looking for
a part time job compared to a enjoyable retirement without much tension.
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There is a big difference what 50% less corpus can do! . Its like earning Rs 30,000 per month
from next month compared to Rs 60,000 right now , imagine our life from next month.
Spending Maximum vs Investing Maximum
Lets talk about the first two possibilities mentioned above --- Spending Maximum vs
Investing Maximum . Lets say there are two guys who earn 75,000 per month. Both are
unmarried (we all are, at the time of getting a job and next few years , possibly 4-5 yrs) and
have similar conditions.
The first guy operates from the mindset of Life happens now and this is the time to
spend, who knows about future , however the other guy operates from the mindset of Life is
uncertain, I can save today , so that I can protect my future now . Both are ideologies and way
you think, but it can have drastic impact on your life. Because your financial life operates like a
chain reaction. What you do in the first year, has some impact on 2nd year, what you do in 2nd
year affects your 3rd year and so on, obviously assuming that your pay rise is natural and not
shoots from 3 lacs per annum to 13 lacs per annum in short term.
If you are struggling to make a down-payment for your dream house TODAY, you can clearly
see your early 5 yrs have been and identify that point where you could have been more
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responsible, where you could have given your financial life a new direction and shape. If you
are not able to fulfil your big goals coming soon, its a clear indication that you have done
something wrong in first 5-6 yrs of your financial life or early years. In the same way if you are
at peace today, you can clearly identify what right things you did in the start of your career .
Real Life Experience of Saving Early in Life
One of the readers Ashish shares his experience about how he saved early in life and how his
life is right now.
After completing my study in 2004, I started my career in IT industry. Three thing was clearly injected
in my mind by my father :-
1) Always maintain the cash for emergency. As in emergency cash is primary and relation is secondary.
2) Never go for loan. If you need money, first check with your relative and don’t mind paying interest
on the money you owe from them. It will always be cheaper then bank. If no help available, consider
the thing is not worth to invest.
3) Respect your money. Though I am not obedient son of my father but “Money matters”. So I started
maintaining one excel sheet about my expanse. I must say with my experience that daily expanse is not
cost you more if you spend smartly. So at the start of my career, I compromised on my comfort level.
Instead of staying in separate house, I searched for shared accommodation or PG which really helped
in saving a lot. Instead of buying bike, I calculated my per-day travel expanse and tried my best to
minimize it by sometime taking lift with office colleague
Travel and Stay is the biggest expanse as per my experience and this clicked me an idea of buying a
house. I was not capable enough to buy the house, so instead of taking loan from bank I knocked my
father’s door and able to convince him on 4% interest rate(following papa’s advice). No need to say
that I paid 4% or not, but he is happy to see the value of that flat on today’s rate. But I was not able to
stay in that house for more than a year as I changed my job very frequently(at least once or twice in a
year) and happily rented so far.
I travelled from Gurgaon–hydbd–Noida–Pune–Mumbai and then finally got chance for onsite UK in
2008. I applied the same logic and maintained at least 1 lac saving per month. And the story continued
since then on saving more and spending less. With this, I am able to manage to renovate my own
house for my parents (which they call now as my house officially )
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Then I married in 2009 on my own expanse and came back to India last year when we both thought
that there is no place better than India on this earth. And it get proved as well, when my wife also got
the job in same company and same building . Before coming to india, I showed no interest in paper
form investment except ppf and property investment. But after becoming the member of JagoInvestor
and reading some well written and advices article, I did another smart investment. 60 + 40 lac term
insurance for me an my wife from two different company. One personal accident insurance of 40 lac
from LnT for myself.
SIP of 8k per month in different MFs , which I considered after reading one of the article on
jagoinvestor where the comparison was made with child plan and other investments and purchased
one villa plot in Bangalore. So far no Loan . So far the story is this but adding new pages
everyday… I know there are more happy family out there but just want to say that “Saving does help
not hurt”.
I would say your life has constant amount of comfort in your financial life , its your choice when
you want to have it , in the start of later years or keep a balance in start and end. The best
approach I feel is to 1st year your earning life to yourself , enjoy , spend and do what you
always wanted. After first year just get damn serious ! .. What do you think ?
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2. What is your Money Personality ?
Do you know what your money personality is? Now you must be thinking what is the meaning
of Money Personality ? Let me give you a hint! . Ajay earns a lot of money, but his financial life
is not that great, the main reason is that he is too conservative with his investments and all his
s all. This happens due to his internal
design of being a Saver . His life is all about saving and only saving and there comes his
money personality.
Money Personality
We have identified that each one of us have a money personality which we develop during our
life and all our actions are driven by our money personality, even our financial life is driven by
it and the product we choose, the way we look at each and every aspect is result of what
money personality we have.
Over the last few years, when we interacted withdozens of clients and thousands of readers
like you, we identified that each one of us can be categorised in following money personalities
which we will discuss today.
1. Spenders
2. Savers
3. Avoiders
4. Saints
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1. Spenders
The first money personality is Spenders . People who fall in this category have an attitude that
Life happens now . They will spend their money all over which makes them feel that they are
living the life. They will buy expensive gadgets, eat out at expensive places and will make
sure that they are not at all compromising on enjoyment. The behaviour also affects their
financial life; their savings are not as much as it can be because most of the leftover money at
the end of the month is saved. The simple rule of Savings = Income --- Expenses is applicable for
these people. Most of these people dont have much left in their bank account by the end of
the month and they wonder Where does it all go? .
2. Savers
The next personality is that of the Savers . These people believe that life is all about saving
and for being prepared for the future. They are not exactly misers, but they appear like misers
to others. Whatever can save money for them looks attractive to them. This behaviour also
enters their financial life and they invest in anything which claims to save money to them. You
can also attach the word Safety with these people. They invest in Fixed Deposits , Reccuring
deposits , bonds , debentures and other investments which are safe avenues. These people like
to buy stuff if it claims to save money to them .
3. Avoiders
The third and an interesting category are of Avoiders . These people are great avoiders, when
it comes to taking actions, they will not spend or save, and instead they will just avoid the
situation and find all the reasons in life for delaying things and avoiding it. They read, talk and
ink that a lot of
us are like that. There are even many readers here who are learning things from months/years,
but still they have not done anything with their learnings, they just read and feel happy that
they know something good, but where is the action?
4. Saints
The last category is really a different one and often forgotten, that is of Saints . A person who
belongs to this category feels that money is an unimportant thing in life. His beliefs would be
Money is not important thing in life , More money is more trouble , Life is all about being
Happy and content and You just need bare minimum and satisfaction to lead a happy life .
Most of the people who
down they themselves are worrying for money, but they make sure they show themselves as
not-interested-in-money kind of individuals.
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Conclusion
So which money personality is better than the other and how to make change in your
personality? First thing is that there is nothing bad or good about having one of these money
easy to change them
affecting your financial life. Try to find out how your money personality can help
in having a financial life which you desire.
What do you think about these personalities and which one are you ?
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3. Four amazing things you can learn from Cricket
Does cricket have anything to do with your financial life? I say, Yes!. Cricket and Financial life
have some amazingly common things! There is much, we can learn from cricket and
what we can learn from cricket, to use in our financial life.
1. Chasing a big score is easy, if you have a good start!
In cricket, making a good score within the first 10-15 o
-100 runs in the first 10 overs. However if you make a very bad
start; losing wickets and not making enough runs, you will have to work much hard later to
reach a good score. We see this in every match. Once the first 15 overs are, well over, we have
fielders placed well, all over the field and everyone is warmed up.
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So, a good start in the start of the match compensates for the slow run rate later, and at the
end you get a good score.
In the same way, your time, at the starting years of your financial life is like a precious wicket .
Dont lose it. The longer you have in your hand, more is the risk you can afford to take. Saving
more in the start helps a lot in building corpus. For example if you invest Rs 10,000 per month
for 30 yrs , you will build a huge corpus at the end. However if you decide to save additional
4,000 per month and invest 14,000 per month for first 10 yrs , you can then stop your
investments and leave that accumulated corpus to grow for 20 more years to reach the same
larger load later. The assumption is that you get 12% return on your investments.
2. Each team member has his place in the team
What will happen if you decide to have 11 Sehwag or 11 Zaheer Khans in the team? Will India
win? I doubt it! A good team has a good batting line up, great bowlers, a wicket keeper with
really safe hands, and quick, sharp, athletic fielders. Having a team that is extremely dependant
on one single ability, would mean that we ignore other areas and leave big wide gaping holes
which in turn lead to f
-450 in 50 overs, but then we
attack. In the same way, if we had 11 Zaheer Khans, we might bowl out the team under 150
So a balance within a team is required. In the same way, our portfolio is a team and it has
different team members like mutual funds, direct equity, ULIPs, Insurance, PPF, other debt
products and of-course --- cash. Each of these have different functions and are useful in
different ways.
unless you are super-expert in that. You can definitely favor one product or strategy, more
common investor. One cant have only equity all his life or only debt products all his life ,you
need to have balance and their comes asset allocation.
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3. You can’t hit sixes & boundaries every time. Just make sure your
run rate is awesome!
This is my favorite! If you look at any match, 6s and 4s are always there and that what most of
ch
has to be identified well to hit boundaries, but if one tries to smash every ball out of the park,
failure is almost certain! All the wickets will fall sooner rather than later. A team has to make
sure that they keep taking singles and doubles consistently, and hit boundaries on weak
deliveries.
In the same way, in our financial life, some years can be awesome with 50% or 100% returns
like 2010-2011 or worst like -50% return in year 2008 , However dont get disheartened by
these extreme years, you have to make sure you make average good returns consistently each
year and keep moving towards your target. Its much easier to get 12-13% return on yearly
basis compared to getting 40-50% year over year. There will definitely be times when you will
make amazing returns from your money. It could be stocks, mutual funds or real estate. But
in a while.
runs in an over, it does not mean that you have lost the game; it just means that you are facing
a strong bowling attack.
will appreciate the fact that India maintained its run rate till the end and made sure they
finally play some winning shots with the backup of our wickets in hand. In the same way, you
need to ensure while chasing your goals, that you maintain a good run-rate year after year.
-rate.
4. Things can go wrong! You need to be nimble & re-evaluate your
strategy
A lot of unexpected things happen in a cricket match. For example there can be a bad start
with very low run rate, fall of important wickets, excellent fielding by the opposing team etc.,
which might make you feel as if the game is all over, but there are many occasions where the
losing side has won.
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It all happened, due to focus, being calm, revaluating the situation and finding the strategy of
now. With slow and steady progress, and some calculated risks there are
many matches where losing side have won.
In your financial life, there can be many issues like losing the initial years of your life without
investing any money, loss of income, change in taxation rules which affect you badly, many
bad years without any good returns etc., and all this can make you feel that you will not
achieve your targe
getting closer to your goals easily. It does not mean however, that things are over! You can
always take charge of your financial life and really fix it. You can spend good time over your
financial life and be extremely committed to make it awesome. Learn personal finance, find
out how to get better returns from your investment, be more aware of what precautions can
be taken etc. You need to be more alert and keep evaluating your strategy for improving your
financial life.
Can you share more learnings from cricket which we can relate to personal finance ? Also,
share if you like the analogies in this article ?
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4. The EMI Disease
A dog held a juicy bone in his jaws, as he crossed a bridge over a brook. When he looked
down into the water he saw a another dog below with what appeared to be a bigger juicier
bone. He jumped into the brook to snatch the bigger bone, letting go, of his own bone. He
quickly learned, of course, that the bigger bone was just a reflection, and so he ended up with
nothing!
What do we learn from this short story?
Some thing, really similar to this story is happening in our lives --- where the bridge which we
are cross is our lives, the bone is our home,(or car or any thing we own) and the other dog is
none other, than the people around us, our friends at work, neighbours, relatives etc., who
might have a bigger home than us, a better car or a more expensive LCD.
Does that mean that we also need to run towards that bigger bone? Yes? No? There is no harm
in fulfilling our needs. As our families grow, and our need for comfort increases, we are bound
to buy bigger homes, bet
buy that much bigger LCD or enjoy that international holiday with the family? The EMI system
changes our wants into needs .
Is Installment system of payment bad ?
Definitely NOT!
way of buying, gives a lot of people the feeling that they can afford anything which comes
their way. And there lies the problem! A sizable chunk of people believe, that they need a
large role in said belief.
The EMI is such a beautiful concept, that even a person with salary of 30k can buy a helicopter!
Why not? Just 9999 per month, for next 200 years! Does he need it? Who cares? He can afford
it! The problem is not the EMI concept in itself. The problem is us --- losing our control on our
spending and extending our affordability horizon to such great lengths, that we have
everything in our life; but most of it is under debt.
Ou
have much data, but my instinct says that most of the people who have taken a home loan, are
living in a much bigger home than they need.
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As per an in-house study, (through a poll,) I found out that as much as 67% of the readers on
this blog or urban net savvy people are paying at least 1 EMI, which would mostly be a house
or car loan EMI. It was astonishing to see that 11% of readers here pay more than 3 EMIs! That
too much!. Make sure that your EMIs are not more than 50% of your total, in hand (net), salary.
Affordability of EMI vs affordability of Loan
If you tell a person, the EMI of a product, chances are that they will believe that he/she can
afford it, as compared to when you tell them the actual price of the product. The problem lies
in the numbers.
The lower the number, the more affordable it becomes! However this is not true! Actually, the
more you reduce the EMI figure, the longer the tenure, and hence the total cost for you over a
long period of time increases drastically!
Lets take some products .
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Home Loan
A classic example is the Home Loan. When a person plans for a loan, he makes sure that the
EMI figure is affordable to him and does not concentrate much on the final value. For example,
consider a person earning 50k per month. The EMI for a home worth 30 lacs @10% will be Rs
39,645. This may look unaffordable to him, so he increases the tenure to 20 yrs instead of 10,
and brings down the EMI to 28,951/- Magically, this same home starts looking affordable to
him! What they concentrate upon, is the initial years, and not the big picture. They might not
case, the EMI will go up to 37000/- ! These are young, recently married individuals, who have
no idea of where they will be working in next 5 yrs. Will they be in same job or same Industry?
What will be their liabilities then? A close look at Real Estate Returns in India
I am not sure, if a 3 BHK is the right choice for a recently married couple who has no one else
with them, to live with. The justification can be that in future they may require it, however if
-20 years, a 1 BHK or 2 BHK is a better choice. Its better to live
in a 1 BHK and breathe easy, rather than a 3 BHK and suffocate every day from the burden of
Home Loan EMI calculation .
Car Loan
A lot of people buy a car before a home, as the EMI is affordable and the car adds to their
comfort. I know a lot of people who can easily manage their life with a bike or without a
vehicle, but have bought a car for reasons only known to them. There are just 2 people in the
A car is a depreciating asset.
This means, that when you buy a car on loan, you are paying more money for something,
important or your comfort gets more bigger than your simplicity, when commuting is a
problem.
The main problem again, is people buy cars that are much bigger and costlier than what they
can afford and need. If you are in the starting phase of your career and have no more than 4
people in the family, why take anything beyond a Santro or Zen? You can always buy that
dream car when you are more stable in your career and the other important things in life are
taken care of. My views may be biased because I am not a car or vehicle lover, so all car experts
might disagree with me here
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Holiday/LCD/Camera/Air Tickets
IRCTC has started giving air tickets on 6 equal EMIs! There is no catch! You can buy a ticket
worth 3k today and pay 500 a month over 6 months. The only catch, is that this makes many
people feel that they can afford it now. A student who was earlier travelling second class in
train or at most, 3rd AC will not just be tempted, but will believe that he can afford air travel
now, which he t 3k in one go.
Holidays are a perfect example! We Indians, are earning very well in this new decade, thanks to
the opening up of our economy and IT sector especially. Our future earnings are more
predictable now, compared to the past and this is the reason why most of the products are
available on EMI; which makes us buy today and then pay for it for next couple of years.
Conclusion
There is nothing wrong in buying things on EMI, as long as you know what you are doing, and
yourself in so much debt, that it gets tough to come out. Save a good amount for down
payment and take debt only when buying something becomes inevitable. An early Start in
Saving today will make you wealth overtime
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5. Three should know 1. Compound Interest
This formula is often used to calculate the returns some investment has given . The main
concept in compound interest is that interest gets accumulated with the total principal
amount and that interest again earns interest over the years. Which makes it very powerful .
Formula : A = P * (1+r/t)^(nt)
Where
P = principal amount (initial investment)
r = annual interest rate (as a decimal)
n = number of times the interest is compounded per year
t = number of years
A = amount after time t
Example 1 :
Investment = Rs 10,000
return = 9%
investment period = 8 years
Total amount = 10000(1+.09)^8 = 19925.63
Example 2
Sensex returned 17.3% return over 29yrs since its inception in 1979 . What would be worth of
Rs 10,000 invested that time .
A = 10,000 * (1+.173)^29 = 1022450.64 (10 lacs)
You can see that a small amount has actually grown to 100 times .
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2. CAGR
This tool is very important because it helps in comparing two differnt returns from two
investments , you can calculate how much an investment has returned per year on
compounded basis , Its just the opposite of Compound interest.
Formula : CAGR = (A/P)1/n --- 1
where:
A = Final amount
P = amount invested
n = Number of years
CAGR can be a great tool to compare two different investments and there returns .
Example
A. 10,000 invested in a XYZ mutual fund for 2 yrs became 20,000
B. 50,000 invested in GOLD for 7 years became 4,00,000
Which investment has given more returns ?
Here the main doubt is that how to calculate which one is better .. the amount , tenure is
different . So in this case we calculate and see CAGR , one with more CAGR will be good .
A) CAGR = 41.42 %
B) CAGR = 34.59 %
So , investment in A is better than B.
3. Annuity
This formula is very very important one , in our daily life we come across many situation where
we do a fixed payment at the fixed interval , and we want to calculate the returns , but we dont
know how to do it .. Example can be
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- Monthly payments in Mutual funds through SIP
- Yearly payment in a PPF .
Or any investment at a fixed inteval over some years. In that case we calculate the Final value
using formula called Annuity .
Formula : A = P * [{(1+i)^n - 1 }/i] * (1+i) (if payment are being made at the start)
(it will be P * [{(1+i)^n - 1 }/i] if payments are made at the end of the year)
Where
A = final amount
P = installment each time
n = total number of instalments
i = interest rate for that tenure (example if yearly return is 24% , but payments are made
monthly then i = 24/12 = 2%)
Example 1
Robert invests 10,000 each month in a mutual fund for 10 years and the annual return was 18%
, what will be his final corpus ?
Here as payments are monthly , total payment will be 10 * 12 = 120
so n = 120 and i = 1.5 % (18/12)
A = 10,000 * [{(1+ .015)^120 - 1}/.015 ] * (1+ .015) => 40,39.241 (40 lacs)
Example 2
Vikas is planning his retirement , and planning to invest 5,000 per month in a Mutual fund for
20 yrs where he expects a return of 15% , then take out all the amount after 20 yrs and then
put it in a FD for 15 yrs which gives him 9.5% return .
Here , we there are two parts
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A. He makes monthly payment for 20 yrs (here we have to apply annuity)
B. then he takes the money out after 20 yrs and then put it in FD for 15 yrs (as this is one time
payment , here we will apply compound interest)
A )
n = 240 and i = 1.25% (as the payment are monthly)
His money after 20 years = [5,000 * (1 + .0125)^240 - 1) / .0125] * ( 1.0125) = 75,80,000 (75 lacs)
Now he invests this money into a FD for 15 yrs at 9.5% .
B)
Final amount = 75,80,000 * (1.095)^15 = 2,95,00,000 (2.95 crores OR 29.5 millions)
So his final corpus will be 2.95 crores .
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6. Nine most asked questions about Term Insurance
How does claim settlement work in case you have more than one term insurance policy? Does
term insurance provide cover outside India? What if I suffer from some major illness or start
smoking after buying a term insurance policy? How easy is it to get a claim from aprivate
insurance company as compared to the state-owned Life Insurance Corporation of India (LIC)?
I am sure you must be concerned about all these questions if you have a term insurance
policy or planning to buy one.
Today, I will answer some of the most asked questions, which an individual has in his mind,
about term insurance. These questions if left unanswered would not only lead to fear, but may
also delay one from taking the right decision. Please note: The following questions and
However, very rarely these questions and answers may differ across insurers.
1. Do Term Insurance pay in case of Accidental Death ?
Yes, term insurance pays in case of an accidental death. The sum assured or cover taken under
the term plan will pay the claim if the death has occurred due to any reason, be it natural or
accidental death, or death due to some illness.
There are certain riders (additional benefits) such as accidental death benefit, permanent
disability rider and critical illness rider. By buying/adding these riders to the policy, a
policyholder can ensure that his nominee will get an amount over and above the basic sum
assured (due to any of the rider-related incidents).
2. Does Life Insurance covers death outside India ?
Yes, term plans cover death outside India provided the policyholder has updated this fact with
the insurance company. He needs to mention that he now lives outside India. Just like change
of phone number, address or nominee, there is a facility in the policy service form where the
policyholder has to mention that he is going abroad.
However, if he is going to a country that is marked as unsafe like Pakistan, Burma, Somalia etc,
then the company will decline this facility. Otherwise, this cover will be valid in other countries
like US or UK.
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3. To what extent Pvt Insurance companies investigates death compared to
LIC ?
There is a difference between early claim and normal claim. If a claim arises within the first two
years of buying the policy (This period varies from company to company), the company
investigates extensively before settling the claim. You can very well understand if someone
has a cover of Rs 50 lakh by paying Rs 7,000 annually (And he has taken this policy on monthly
basis, i.e. paying around Rs 600 monthly), then the company is at a great risk.
Hence, the company will doubly check everything to settle the claim. In normal claim,
premiums are paid regularly and the policy is in force for a long period, say 12 to 15 years. In
these cases, there are not much issues in getting a claim, be it LIC or any private company.
4. If I buy a term insurance policy today, can its premium change in the future?
remains the same throughout the term of the policy provided everything remains the same
with the policyholder. That is, the policyholder has not developed any illness or any
smoking/drinking habit. On declaring any such thing, company might apply loading and thus
the premium amount changes.
5. What if a person becomes a smoker after some years of taking the policies ?
If the policyholder has developed any habit, like drinking or smoking, after buying the policy,
he has to disclose this fact to the company as now he belongs to a different risk pool. The
company may levy loading(increase in premiums) on the existing premium or even cancel the
policy. This is necessary as violation of this term can result in decline of the claim in extreme
cases.
6. What if a person was a smoker long back but not at the time of taking the
policy?
Depends on the policy, but just for example, the Kotak Life Insurance proposal form mentions
that the client has to declare whether he was a smoker or drinker earlier also even if he has left
that habit long ago. Please see page 4, question 10.3 of this document .
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However, I am not sure about other companies. Also, it depends on the company whom they
consider as a non-smoker at the time of issuing a policy. For example: Max New York Life
Insurance, for its Platinum Protect (term insurance), considers people, who have left smoking
more than three years ago, as non-
7. What kind of deaths are not covered in term insurance?
Some important facts, which most of the people are unaware of, are that most companies
exclude Death due to Terrorist Attack . Although such claims are settled on humanitarian
grounds later on when the nominee approaches Insurance Regulatory and Development
Authority (IRDA) but such exclusion is there in most companies. Other important fact, which
public at large is unaware of, is that insurance companies do not cover death due to war or
natural disaster like earthquake/tsunami. Because in these cases, death toll is high and the
claim to be settled runs in crores of rupees which is difficult to settle by the company all of a
sudden. Therefore, these facts should also be kept in mind while buying a term insurance.
8. How to take care of claim settlement in case of more than two policies?
The very first thing, in these cases, is to declare in the proposal form that you already have a
policy from an XYZ company.
client has to fill if he has an insurance policy from the same company or any other company).
Once such information is provided, then at the time of claim, the usual practice is to submit
the Death Certificate to the insurance company with whom the policy is running for the
longest period. Other companies are then informed of the procedure due and an
acknowledgment from the FIRST company is provided to them which is accepted by other
companies.
Moreover, of late, it has been reported that generally insurance companies do not ask for an
original death certificate to settle the claims, even a photocopy of the certificate will do. So be
alert while filling the form and provide all the information about your previous policies to
prevent even a minor problem later on.
They can, but there is a catch. As a general rule, A person has to be resident in india to take up
insurance policy from an Indian Company, reason being the documents required by the
company like Address proof/age proof are to be for some place in India. Moreover, if the Sum
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assured required is more than 50 lakhs or so, customer is required to submit his financial
papers such as last 3 years ITR or Form-16 which again should be done in India only. Last thing,
medical tests would be done at some medical center affiliated to the insurance company near
the address of the client which again should be in India. So these are reason why insurance
might have been declined to some NRI.
So one way which might work is this , If a NRI wants to take Insurance, then on his/her next
visit to India he should submit his proof of residence, age, last 3 years ITR etc and get his
medical done at his Indian address. this way he can get his policy issued very easily. However,
there is no need to complicate it and incase you are out in some country and plan to be there
for next couple of years , the best thing would be to take term insurance from your country of
residence and later when you come back to India , you can buy term insurance that time.
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7. 17 Most asked questions in Health
Insurance
Are you confused about many things when it comes to Health Insurance in India ? Are you
afraid of rules and regulation in Mediclaim policies ? Are you not clear about how will you deal
with various things in Health Insurance and delaying your decision of taking a Health Policy ?
Today we will look at most frequently asked questions in Health Insurance try to answer those
questions.
1. Can a person get claim from his own company and spouse company if they
are covered under both companies ?
Yes, if both husband and wife are covered from their employer, they can claim from insurance
provided to them by both the companies. For e.g. if husband is covered for 1 lac under group
insurance policy from his company (and her spouse is also covered under her husband
company policy), and the same situation exists vice versa, both of them are then, actually
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something happens and husband gets hospitalized and expenses are 1.8 lacs, then husband
can make a claim of 1 lacs from any one of the company and remaining 80k from other
can get reimbursed by insurance company. One important point worth noting is that during
reimbursement, one should apply for the reimbursement first to his parent company and then
to the one of his spouse. See some hidden health insurance policies
2. Do we have to notify the company about any illness or habit developed in
between?
No, we are not required to notify the company regarding any complication or health issue. If
the policyholder is hospitalized, the company will automatically come to know of it. Otherwise,
no need to inform the company about any such policy. If you notify the company, your
premium for year after notification will increase, if it is under their list of illness to be checked. If
fy the company and when you go for a claim, they will come to know that it was
developed earlier and the claim will be settled accordingly and from next year onwards they
might put loading on it (All these reasons vary from company to company). So whether you
details before giving you the claim.
3. Does Health Insurance cover everything from accident, surgery, normal
hospitalization ?
Yes, Health Insurance covers you for everything, provided you were hospitalized, be it for any
reason; due to accident, illness, or disease. If someone met with an accident and he is
hospitalized, then his mediclaim policy will pay for his bills, no exceptions.
4. What are the advantages of sticking to one Health Insurance company for a
long time ?
The plus point of sticking with one company is that if someone is suffering from any pre-
existing disease at the time of commencement of policy, those complications will be covered
after 4 years. Until portability is introduced in India, this is the single biggest advantage to stick
with one company for long. Another advantage is that when you have a continued policy from
any insurance company, after few years you get bonus or discount in premium.
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For example: Suppose you have a policy of 3 lacs and you are with the same insurer for past 4
years you can get a bonus of 50% i.e. you pay premium for 3 lac only but you get coverage of
any serious problems with the insurance company then it is better to stick to one company.
claim? What about emergency situations ?
ravel to India for treatment
and can claim it. however they will have to show their residence proof, ITR and a few other
India.The cost of treatment in India is different and cheaper than countries like USA, UK and
other European countries. The premium amount computed depends on Indian conditions and
parameters.
So if a NRI has health insurance form Indian company, that person would be paying premium
as per India actuaries and obviously cost of treatment in his residing country would be higher
than India. For e.g. If a person get dengue and he is very critical and requires urgent
hospitalization, the cost of treatment in India would come up to 1-2 lacs (and this is on higher
side.) The same treatment would cost around 10-15 thousand dollars in US so this burns a hole
Rules about NRI insurance and
Investments
6. How to claim successfully in case of emergency and planned
hospitalization?
The most basic fundamental for a smooth claim process is keeping all your documents up to
date. If you have a past history of illness, make sure that you submit those documents too,
because the TPA department -existing disease or not.
While submitting your documents make sure that all the documents are proper and there is no
missing document pertaining to your illness. This will just give a chance to TPAs to make
hospitalization, if you inform your mediclaim company in advance and take prior
authorization, everything will be settled by the mediclaim company or TPA, without the
policyholder been required to submit any document.
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7. Is it better to take accidental policy separately or mix it with term insurance
as a rider?
If your accidental policy is a rider with some Term insurance (9 most asked questions about
Term Insurance) then you must take care that it covers everything what accidental policy
should cover. Generally when a policy is offered as a rider it does not cover each and every
aspect. For e.g. An accidental policy offers insurance against partial disablement, loss of limbs,
hands and many other parts.
But in a rider, many insurance company offers insurance against permanent disablement only
and not for partial disablement and loss of body parts. Also note that, because accidental rider
is much less if taken with Term Plan as compared to the personal accidental policy taken stand
alone. Under term plan, accidental death benefit could be taken for as little as Rs 1000 for a
cover of upto 15 lakhs where as in a stand alone policy the same amount will be available for a
premium of around Rs 2000. So it depends.
8. What are the top most things one should check in the policy documents ?
The first thing one should have a look at, is to check what the exclusions in the policy are. This
is because, we get information on what is covered but no insurance company will give
information on what is not covered and this creates a problem at the time of claims. So to
avoid any surprises, one should have a thorough look at exclusions as well.
For e.g. A new circular was passed by many insurance companies few months ago in which
they provided only Rs.20-24 thousand (different companies had different rates) compensation
for cataract operation. Earlier there was no limit on it. So sometimes in list of coverage for
the details and this can land us in soup sometimes. Many insurance companies now
provide Maternity benefits but they limit it to coverage of only Rs.20-30 thousand, we just see
that maternity benefits are given but sometimes fail to notice how much coverage is given.
Also check if the policy has Loading and Co-pay .
9. If there are no loading charges, can premium still change on renewal?
This is a very big question with very easy answer..If you check the premium structure of any of
the mediclaim company, either there premium is increasing every year or they have premium
slab for different age groups; something like for age 30-35 premium is 4200 and from age 36-
40 its 6700.
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So under this second policy, when the policy holder moves from age 35 to 36, his premium
suddenly jumps by Rs 2500 and this is not loading. So yes, premium can/will increase
irrespective of loading after certain age.
10. Is it a good idea to split health insurance into 2 policies? Tips?
No logic for doing this except personal preference. If you are taking another mediclaim policy
just to increase your cover, why not get your cover amount enhanced in the existing
policy/company. Get another mediclaim policy only if certain other company is offering
feature/features which your existing policy does not and you have surplus funds at your end to
afford 2 separate mediclaim policies at a time. No other reason to, otherwise.
11 . During the course of my treatment, can I change the hospitals?
Yes it is possible to shift to another hospital for reasons of requirement, of better medical
procedure. However, this will be evaluated by the TPA on the merits of the case and as per
policy terms and conditions. Note that it would be prudent if you check the network hospital
list and go to the best hospital in the beginning itself rather than changing midway.
12. What are the situations under which one may be denied cashless
hospitalization?
1. If there is any doubt in the coverage of treatment of present ailment under the Policy if
the information sent to TPA is insufficient to confirm coverage
2. If the ailment/condition is not being covered under the policy.
3. If the request for pre-authorization is not received by TPA in time. In such a situation, the
Insured can take the treatment, pay for the treatment to the hospital and after discharge,
send the claim to TPA for processing.
4. In case the hospital in not on the panel of the company or the disease/illness is pre-
existing and not covered for 4 years.
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13. Whom can I approach in case of a conflict with insurance company with
regards to my claims?
The Grievance Redressal Cell of the Insurance Regulatory and Development Authority (IRDA)
looks into complaints from policyholders. Complaints against Life and Non-life insurers are
handled separately. This Cell plays a facilitative role by taking up complaints with the
respective insurers. Policyholders who have complaints against insurers are required to first
approach the Grievance/ Customer Complaints Cell of the concerned insurer. If they do not
receive a response from insurer(s) within a reasonable period of time or are dissatisfied with
the response of the company, they may approach the Grievance Cell of the IRDA.
14. What is the difference between Critical illness insurance and normal health
insurance ?
In a critical illness policy you are covered for certain mentioned critical illnesses only. Some of
depending on the companies.
If you have normal health insurance you will definitely get covered for critical illness but in
age is 25 and you buy normal health insurance from any XYZ company and let say its premium
is Rs. 3000 for cover of 3 lacs but if you buy critical illness policy for 3 lacs the premium would
be less because considering your age the changes of you getting a critical illness is lesser than
any normal disease.
Similarly for old age person the premium for critical illness insurance will be more than normal
health insurance because chances of getting that critical disease are more at older age. One
other option would be to avail critical illness rider in term plan itself.
15. What is the benefit of critical illness policy?
So as you grow older it is advisable to have another critical illness policy along with normal
health insurance. So those at old age when undergo major operation or transplant, this critical
illness policy can be used and for minor disease normal health insurance is used.
The reason for this is e.g. if you have normal health insurance of 5 lacs and you undergo tumor
surgery with other complications and the expenses are around 4 lacs and after sometime you
get hospitalized because of ill-health then you have nothing left in your health insurance.
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16. What is Domiciliary Hospitalization?
Domiciliary Hospitalization means medical treatment for a period exceeding three days for
such illness/disease/injury which in the normal course would require care and treatment at a
Hospital/Nursing Home but actually taken whilst confined at home in India under any of the
following circumstances, namely
i) The condition of the patient is such that he/she cannot be removed to the
Hospital/Nursing Home or
ii) The patient cannot be removed to Hospital/Nursing Home for lack of accommodation
therein
For smooth claim process, just take care that all your documents are in place and to be on a
safer side have a report from your family doctor, stating that this person cannot move to
nursing home/hospital due to such and such reasons. It just provides the proof and makes the
process simpler. Note that every company does not offer this facility, you should check your
policy document.
17. Some important exclusion under health insurance policy.
1 Pre-existing diseases i.e. Any condition, ailment or injury or related condition(s) for which
insured person had signs or symptoms and/or was diagnosed and/or received medical
advice/treatment within 48 months prior to his/her health policy with the company. Pre
existing diseases will be covered after a maximum of four years since the inception of the polic
2. Any disease contracted during the first 30 days of inception of policy except in case of injury
arising out of accident
3. Certain diseases such as cataract, piles, hernia, and sinusitis etc. are excluded for specified
periods if contracted or manifested during the currency of the policy.
4. Injury or Diseases directly or indirectly attributable to War, Invasion, Act of Foreign Enemy,
War like operations.
5. Cosmetic, aesthetic treatment unless arising out of accident.
6. Cost of spectacles, contact lenses and hearing aids
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7. Dental treatment or surgery of any kind unless requiring hospitalization
8. Charges incurred at Hospital or Nursing Home primarily for diagnostic, x-ray or laboratory
examinations, without any treatment.
9. Naturopathy or other forms of local medication
10. Pregnancy & childbirth related diseases
11. Intentional self-injury / injury under influence of alcohol, drugs
12. Diseases such as HIV or AIDS
13. Expenses on vitamins and tonics unless forming part of treatment for disease or injury as
certified by the attending physician.
14. Convalescence, general debility, run-down condition or test cure, congenital external
diseases or defects or anomalies, sterility, venereal disease.
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8. 11 qualities of a Right Financial Advisor
I start my day as a student of wealth and engage my time and energy to find out ways of
expressing myself as a million dollar advisor. Half way through my day, I spend time on calls
taking to people, connecting with them and helping them along. I feel blessed being into
advisory business and I think that every advisor has in him the potential to show up as a
llion dollar advisor is the one who creates
his/her special place in the hearts of his clients. It certainly goes beyond advice and fees.
I want to develop myself and would love to see more and more advisors to show up as million
dollar advisors because I know that good and authentic advice has a lot of power in it. You will
find three types of advisory services in India
Sales driven --- where the primary goal is to sell as many, high margin investment products as
possible.
Goal driven --- where the primary goal is to help people create a logical, rational investment plan
that helps in meeting goals (and they charge a fixed fee for)
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Change driven --- where the primary goal is to create as much positive change as possible for their
clients (which could also involve helping them work with emotional issues / relationship to
money issues / etc)
Here are 11 things to look into your Financial Advisor
1. Your Advisor has to be RICH
If he is not rich how will he make you rich? His financial life has to be inspiring and should
demonstrate how to live an extra-ordinary financial life. He is rich not just in terms of money
but with the overall richness. He is rich with in his thoughts, with ideas, and with speaking and
listening. You should feel empowered in every interaction you have with your advisor.
2. Who is ready to give a sweet kick on your ass
True advice may not be always sweet to hear and easy to digest. Million dollar advisors are
fearless; they will step forward whenever they see casualness or reasons in their clients. They
will fill your financial life with the right rigor. If the advisor really cares for his client than he
this will really move things in your financial life. He should be able to tell you the truth.
Working with a million dollar advisor is never easy you need high level of commitment and
should be willing to pay high fees to receive such high value.
3. Has a clear intention
important to identify the intention of the person you are choosing. Intention is what will
convert into actions when you will move forward with your advisor. All the make-up will wear
off after a few meetings and the real intention (face) becomes visible.
4. Work speaks more than experience or certification
When I started my practice I was really inspired by L Dolan who was a very famous Time
Management Consultant. He used to advice mostly companies and groups.
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He had no visiting card, no brochure, no website, no videos or audio to show his work to his
prospects. Yet he had 100% conversion. All those who contacted him always became his
clients. If someone wants to hire him he would send a box full of 500 hand-written heartfelt
letters (Transformative Testimonials). This is what he used to do with all prospects and his
conversion was 100%. His work would always get him more work.
It does not matter how many plans your advisor has created; what matters is how many
financial lives they have changed. Even a new advisor can achieve this, he may have just one
him to become a million
dollar advisor.
5. Advice Comes with Money Back Guarantee
A million dollar advisor has full confidence in his work and his ability to advice. If he feels you
are not ready to work with him he will say a clear NO to you. He is not needy as needy is
creepy. He has the guts to turn your offer down. It is not the fees that will determine his choice
it is your overall attitude that matters to him. Giving a money back guarantee is not to lure an
investor or as a marketing gimmick but this is the confidence he has in his own work and his
abilities.
6. One who helps you to un-learn
The real change and transformation comes from unlearning and you advisor has to help
you attain this skill -
supportive beliefs about wealth creation gets stripped off.
7. Experts connect you with other experts
A real expert always connects you with other experts as he is always surrounded by good
experts. If your advisor is a million dollar advisor he will connect you with the best of the
experts or companies available in the market with different solutions for you. He will connect
you with the best of the best so that things move faster in your financial life.
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8. Does not believe in customers are always right
This is one of the best ways to measure your advisor. Do something stupid or commit a
mistake and see what your advisor does with it- he is accepting your mistake, or appreciates
you or gives you a negative feedback that YOU ARE WRONG . All those advisors who believe
in customers are always right are NOT million dollar advisors. They are moving in the market
only to get business and to please people and not to serve people.
9. Helps you transform your financial habits
This is one area where most planners and investors do not focus. We are creatures of our habits
some are supportive and some are not. Till you do not identify your unsupportive financial
habits
10. When shit happens he helps you to convert it into fertilizer
Our financial life is always a mix of good and bad experiences. It is not possible to find a person
who always had only good experiences in his financial life. The million dollar advisor helps you
grow from your mistakes. He talks about possibilities and helps you win with the cards you
have. Your million dollar advisor will make you okay with all these good and bad experiences
and helps you grow.
11. One who Walks the Talk
Financial planners are not movie stars who are free not to use products/service that they
endorse. True advice is not give
financial plan because investors never ask for it. Your Planner has to have his own finances in
place. He should have his goals in place; he should be having his finances in place, he has his
own strategies in place and sees that his financial goals are inspiring, full of life and energy. He
has to be a disciplined investor himself. He himself is relaxed in the area of money.
The bottom line is your million dollar advisor is a stand for your financial success. He Helps you
win with the cards you have, He will make money when you make money; He will suggest you
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products that he is ready to buy. Do share your views on the above 11 ways and which one is
most appealing to you as an investor.
This week
Decide if you need professional help in your financial life or not?
What kind of advisor you would love to work with sales driven, Goal driven or Change driven?
Are you ready to make a financial commitment?
Which of the above qualities you would like to see in your advisor?
Thanks for reading this Ebook . We are sure it must have
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