Tag: Beginner Level

Secure Your Family , Risk Management Part 2

Posted on by Jagoinvestor

Why do we invest ?

Answer : For ourself, for our Family, for there better future , for our kids , for there better life , for financial independence, at last the answer comes down to Our Family.

But, before investing, do we make sure that , do we secure our family at first place against any risk and problems which may arise. You can invest in great things, whatever it is like Mutual funds, ULIPS, direct shares, gold, blah blah blah …

Why Do We Invest

But what if some bad things happens to you and your family is left behind with no money at present, what is your wife, kids or your parents meet some accident and go to hospital. Is that more important or creating your wealth for future.

What is more important is to first concentrate on “Now” and if everything is taken care of, only then think about the future. How do you secure your family.

There are two things :

1. Life Insurance for yourself (assuming you are the bread winner)
2. Health Insurance for your entire family, especially if your have old parents, or going to become old in some years 🙂 .

1. Life Insurance : Read https://finance-and-investing.blogspot.com/2008/06/life-insurance-revisited-one-of-my-good.html for understanding it better .

2. Health Insurance : Read https://finance-and-investing.blogspot.com/2008/07/health-insurance-what-is-health-or.html

Let me talk about a case study .

– Robert is in his 30’s earning 5,00,000/Annam. He is married and has 2 kids .

Robert needs life insurance of around 50 lacs to secure him Family . also he should take a health cover of 4-5 lacs each .

He can take a term cover of 50 lacs for 6367 . He can also take Health Insurance of Rs 4 lacs each for him , his wife and his 2 kids (family floater plan) @Rs 5000 (Check click2insure.in for these quotes) .

Means , he can take both of these things at 21,000 / year . It comes out to be 4.2% of his yearly Income.

Now think , can you spend 5% of your yearly salary for safety and coverage of your Family ? I thing YES !!

Once you do this , you are free of any tension , and now you can use your 95% money to generate long term wealth for your family and there security . You can effectively use your 95% , only if you use your 5% for your risk management .

There can be many cases when you dont cover your family and things can go wrong, like

1. You invest heavily in Mutual funds or ULIP’s or what ever and in 2 years you die in an accident, what will happen then …

2. You invest your money in ELSS (tax saving mutual funds) for last 2 yrs and have life insurance also , but suddenly you wife meets an accident and you require 5 lacs for an operation , but you never took Health Insurance .

Investing your money is important, Covering your risks are Vital !!

Live in the moment, “now” is the truth … Keep you family happy with covering then and yourself now .

Some tips :

– Take a life cover ASAP if you have not taken it yet.

– Buy a family floater plan if your family has spouse and kids, for Parents you need to take a separate individual policy, as parents are not covered in Family floater plans.

– You can also claim tax benefit for this under section 80D.

– Don’t feel that life insurance from other companies (other than LIC) are very risky and anything like that . Insurance sector is now getting mature enough and govt is taking all measures to confirm that the companies which enter Insurance Industry are from great Business families and conform with the guidelines . But its true that LIC will always be the safest (100%) .. but 99.999% is also safe …

Summary

Its more important to cover your Life risk and family Health risks first before any investments for future , when you put your money in Insurance and Health Insurance you are already taking steps for strong invesments for future which is safety of your family , which is of supreme importance . Dont ignore it … Take appropriate cover .

Tax Exemptions Rules , Who is included and who is not

Posted on by Jagoinvestor

Following is a chart showing the list of people for whom you can claim deductions for tax exemption. For example, if you pay the LIC Insurance premium, you can claim if the got premium paid for.

  • Yourself
  • Spouse
  • Children

For further details … see this table … Click to enlarge it.

To know about the tax slab and an example for calculating tax .. see : http://finance-and-investing.blogspot.com/2008/04/tax-information-for-2008.html

Financial Resolutions for 2009

Posted on by Jagoinvestor

Hi Friends, Happy New Year to all of you. As this new year is coming, Let us discuss some things, they are:

1. Financial Resolutions for 2009
2. The outlook of Asset Classes in 2009 and onwards.

Financial resolution

Financial Resolutions for 2009

Let us all make sure that we will do better than the previous year and make some changes.

#1. Adopt the attitude of Expenses = Salary – Savings instead of Savings = Salary – Expenses

#2. Learn more and more about investing to at least up to a level, where I can take my decisions without any help of others and also be able to help someone else.

#3. Learn all the basic taxation rules and investing rules.

#4. Not take decisions whose Risk/reward ratio does not suit me, even if there is no risk in some investment, its return should at least match your goals.

Person 1: Person not investing his money in any thing (just putting it in the bank) and having a desire of getting a 15% return and risk appetite of the same.

Person 2: Another person investing in Equity for a return of 50% in a year, but he actually requires and can be fine with a 15% return.

Both the people here are wrong and are not doing correctly. They must invest in a way that satisfies both there return/risk ratio.

#5. Will not get trapped in useless products just because someone else thinks so, we will do our own analysis, take suggestions from reliable sources and people with knowledge and only then invest our hard-earned money.

Outlook and suggestions for Asset classes in 2009

Let us see some asset classes and let’s have a quick view of it.

#1. Mutual Funds: The situation now is little under control, with a downward bias for the first quarter, but things should be good by the year-end and then we can see a good rally there after. Better to invest though SIP only.

#2. Direct Equity (shares): Make sure you buy shares only if you have long term view and do not want to speculate for short term .. You can buy some very good shares now and hold it for the next 5-20 yrs, and I am sure they will return fortune. The best time after 2003 is NOW !! But better buy on dips …

If you want to invest 100, make sure you break it in 3-4 parts and invest on dips … its like following SIP on our own. Metals (safe) and Real estate (little risky for short term) can be a good bet for long term investments.

#3. Real Estate: No comments … There are still chances of further correction … But people who do not want to buy it for investment can still invest if it suits there requirement and budget.

#4. Bank FD’s: People looking for short term investments like 6 months – 1.5 yrs can put their money in FD’s… The interest rates offered are good and with inflation coming down, it will be a fair investment.

#5. Derivatives (Futures and Options): There are many people who are now trying these instruments, do not understand the risk associated, Please understand very clearly that these are Atom bombs in the Finance field … You can either kill yourself with it or make a Killing out of it …

If you want to do it .. better learn about it .. prepare heavily and only then enter .. Else defeat is almost certain. Some of the biggest financial companies have gone bankrupt over night because of derivatives.

See:

The use of derivatives can result in large losses due to the use of leverage, or borrowing. Derivatives allow investors to earn large returns from small movements in the underlying asset’s price. However, investors could lose large amounts if the price of the underlying moves against them significantly.

There have been several instances of massive losses in derivative markets, such as:

  • The need to recapitalize insurer American International Group (AIG) with $85 billion of debt provided by the US federal government[4]. An AIG subsidiary had lost more than $18 billion over the preceding three quarters on Credit Default Swaps (CDS) it had written.[5] It was reported that the recapitalization was necessary because further losses were foreseeable over the next few quarters.
  • The loss of $7.2 Billion by Société Générale in January 2008 through misuse of futures contracts.
  • The loss of US$6.4 billion in the failed fund Amaranth Advisors, which was long natural gas in September 2006 when the price plummeted.
  • The loss of US$4.6 billion in the failed fund Long-Term Capital Management in 1998.
  • The bankruptcy of Orange County, CA in 1994, the largest municipal bankruptcy in U.S. history. On December 6, 1994, Orange County declared Chapter 9 bankruptcy, from which it emerged in June 1995. The county lost about $1.6 billion through derivatives trading. Orange County was neither bankrupt nor insolvent at the time; however, because of the strategy, the county employed it was unable to generate the cash flows needed to maintain services. Orange County is a good example of what happens when derivatives are used incorrectly and positions liquidated in an unplanned manner; had they not liquidated they would not have lost any money as their positions rebounded.[citation needed] Potentially problematic use of interest-rate derivatives by US municipalities has continued in recent years. See, for example:[6]
  • The Nick Leeson affair in 1994

Also See: https://en.wikipedia.org/wiki/List_of_trading_losses

#6. Gold: Gold has lost its shine a bit now and can not be considered the best investment you can make … Still a small part can be in a portfolio, but not more than 5%.

#7. Debt Mutual Funds: People can invest in these debt funds also if their investment horizon is less than 1 yrs (invest for short term goals).

#8. Insurance: Any one who has still not taken insurance and still finds that he/she needs to take it .. please take is ASAP. There should not be any delay in taking Life Insurance ever.

Some Notes on Inflation:

Inflation may go down below 0% in 2009, because of speedy fall in commodity and crude prices.

Source: https://www.zeenews.com/nation/2008-12-28/494368news.html

Economy and Job Losses:

India may see some effect of job losses and slow down in 2009 … Corporate results are expected to be devastating in the first and second quarters of 2009 at least … But still, India is among the top growing economies in the world. So we must not concentrate on the short term. India’s future is Great and unquestionable.

Summary: 2009 will be a good year, it is an excellent year and we will not do mistakes if we have done in 2008 and before. we will learn more and use our money in a better way from now onwards.

4 reasons why creating an emergency fund should be a top priority for every investor?

Posted on by Jagoinvestor

Planning your financial life does not mean planning for your long term financial needs only, It will be incomplete unless you keep an emergency fund for the unexpected emergency situations.

In this article i will tell you why it is important to keep emergency fund and how much of this fund you should keep aside.

emergency-fund-importance

What is Emergency fund?

Emergency fund is the money that you should keep aside, so that you can use it in case you meet up with some sudden financial surprises, for example –

  • Unexpected medical expenses
  • Job loss
  • Vehicle repair or home decor
  • Helping someone close in his need
  • Unplanned traveling or entertainment expenses
  • Any financial crisis etc.

Emergency funds are not to satisfy the daily expenses and basic needs, it is a support that you will have when you really need it in your hard time.

Why is is essential to have an emergency fund?

Having an emergency corpus must be the priority for everyone while planning for a great financial life. Let’s see some of the impacts of having emergency fund on your personal and financial life.

1. Helps you to keep your stress level low

When your know that you have an emergency fund, you can live a stress-free and relaxed life. Because you know that you have a backup plan and so if any emergency pop-ups you are already ready to face it.

2. No need to take an emergency loan

Taking a loan or asking for money in your hard time can sometime hurts your pride. Having an Emergency fund will be helpful not only to solve the problem but it also protects your self-esteem.

3. Don’t have to redeem from your future savings

Your savings are related to some very important future goals of yours. Contingency fund will help you to protect those dreams of yours by satisfying your today’s emergency need.

4. No need to cut your essential expenses –

It happens with most of the people, they have to sacrifice their expenses though they are important, to collect money for their unplanned or emergency expenses. Having an emergency will be a helpful hand in those difficult times of yours.

Why it makes sense to have an Emergency fund?

With the global slowdown, there are many cases of unexpected job losses in the field of Finance, IT, Manufacturing and many others. You never know when you will be without job.

Lets take two scenario when you loose your job and you either had Contingency funds and you did not, Let us see what happens in these two cases.

Case 1: You do not have contingency Funds: Put yourself in this Situation, Close your eyes and try to think about this situation, How do you feel?

Your Family depends on you, all your family expenses are met with you salary, now you loose your job!! What if you don’t find another job soon? In this situation you have a heavy pressure on you to anyhow find a new job as soon as possible, You need a JOB !! and not a “good” or “appropriate” or “Dream” JOB.

If you find a job, but you don’t like it or wanted to do it .. still you will have to take it because of the pressure of “finding a JOB because of others depending on you” …

You compromise on Salary, Company and your wishes. Why does this happen? This happens because you cant wait, because you don’t have the to survive of another 1-2-3 months. You know that you can wait a little more and find a good job suitable for you, but you cant wait.

Case 2: You have Sufficient Contingency Funds: This case is just the opposite of what we discussed above. When you have sufficient CF, you have a relief in mind that you have sufficient time to find a good job without compromising your family needs.

You don’t feel the pressure to get the job ASAP. Though you have to find a good job soon, its not necessary that you take any shitty job which comes your way …

See this Video too …

How to start saving for Emergency fund?

1. Pre-decide your monthly expenses –

Plan your monthly expenses. Try to control your expenses as much as possible, so that you can save money to invest in your emergency fund. Today’s unnecessary expenses can have a bad impact on your savings for your contingency fund.

2. Set an auto deduction towards emergency fund –

When you set an auto-deduction for your emergency fund at the start of the month, you will not have any regret at the end of the month for not saving anything for your unexpected emergencies.

3. Don’t touch the emergency fund for quick needs or smaller crisis –

Lot of people do this mistake, they use their emergency corpus for the some very small emergencies which they can handle with their routine expenses also. You should criticize the situation and

4. Save for emergency before investing in long term goals –

You long term investments are related to your specific goals. So it is obvious that you have as emotional attachment with those investment and you don’t want to touch that money for any other purpose. If you have an emergency fund, then you don’t need to use the money you have invested for your future dreams.

Besides, some long term investment have lock-in period, so if you want to redeem your money before completing the maturity time period, you will have to pay some penalty charge.

Where to have Contingency funds?

As per the name, it can be seen that this amount is required at the time of unforeseen situation which can happen anytime,so it must be parked at some liquid avenue like Bank account or Liquid funds.

If you are keeping 4 months of funds as CF, then you can keep 1 month money in Cash and rest 3 months money in Liquid funds.

Summary: Contingency Funds are the part of Risk management. And risk management is something no one should avoid. People realize its importance only when they plan for it and get trapped in a situation which demands Contingency funds. ..

So now its your turn. Plan for it, be ready for unplanned emergency, and secure your future.

What do you feel after reading this article? Do you agree with this?

do let us know what do you think about the concept of emergency fund and also your view on this article in our comment section.

Some Basic Information on Trading and Investing

Posted on by Jagoinvestor

Trading and investing are two different things which confuses lot of beginner investors. In this article I’m going to tell you what is trading and investing and how they are different from each other.

Basics of Trading and Investing

What is an Index?

NIFTY and SENSEX are the Index, they are the indicator of how Markets are performing. An Index is created for measuring a particular section of stocks. When the Index goes up or down, they represent the group of Stocks they comprise of.

So if an Index is up you can say with high probability that most of the stocks under them have done well.

What is Nifty and Sensex?

There are many Stock Exchanges in INDIA, BSE (Bombay Stock Exchange) and NSE (National Stock Exchange) are most famous and biggest of all and with maximum business happening there .

Nifty : Nifty is the Index of NSE. Nifty has 50 biggest companies of India representing the companies from almost all of the sectors, Each stock has there own weightages. Like Reliance, Infosys have High Weightage and Ranbaxy has less.

Sensex : Sensex is a Index of BSE, It is comprised of 30 shares.

What are different Indices on Exchanges?

There are different kind of Indices on Stock Exchanges like for NIFTY.

NIFTY : Basket of all the sectors, Represents all the whole Economy CNX IT : For IT stocks CNX 100 : Top 100 Stocks CNX MIDCAP : For Midcap Stocks BANK NIFTY : For Banks

Each Index represents a sector or a group, if you track a Index you can understand how the sector is performing overall.

What is difference between a Trader and Investor?

Trader : A Trader is a person who tries to earn profit from small movements in price, there time horizon is very small like 1 day or a week or some weeks. For example, A trader will buy something @100 and will sell it at 105 and make a profit of 5. He will try to take advantage of volatility.

His main tools will be Charts, News, sector outlook for short term etc. He will not concentrate much on Company fundamentals, Long term sector outlook.

Investor : A Investor is someone who tries to invest money for long term. Long term can be anything from 1 year to 10-15-20 years.

Investor is more concerned about the fundamentals for the companies, its growth and factors like those which are going to drive the share price in long term not short term … Investor is not concerned about the short term volatility. There focus is long term.

How to Begin Trading?

Trading is one of the toughest things to master. Its a better idea to first learn and read about Trading for some months, Watch the markets for some months and try to paper-trade first. paper trade means just trading on paper and seeing how you perform.

Read about Technical Analysis also. Try to gather more and more info on Trading. Read good Books and Learn as much as you can.

Knowledge and your intelligence has very less contribution in your success as Trader. The main things are Money Management, Discipline, Control over GREED And FEAR, and Risk Management.

Once you are very confident you can start, Start with very small Cash and take big bets only when you have made some progress to cheer about.

Have a plan and targets for your Trading. Take Trading seriously as your business and not as hobby, else with high probability you will Fail.

Watch this video to learn about stock trading at beginners level:

How to Begin Investing?

Read How to analyse stocks and Read books. Have a long term horizon and don’t be afraid of your share coming down …

Should you be a trader or an Investor or nothing?

It depends on your personality, the time you want to give in this and your goals. If you find fun with dealing in markets in short term basis, Be a trader.

If you can devote time to markets in daily or weekly basis, then you can be an Investor.

If you are not interested in Either, just don’t be anything .. Do what you are doing right now 🙂

It was a fast written post, I hope thing are clear.

Some suggestions in mutual funds

Posted on by Jagoinvestor

In this market people are facing dilemma whether to invest in tax saving funds or not ? There are lot of tax mutual funds which will appear on the list if you search for best funds . So the best thing is to hear the experts in the field .

Valueresearchonline.com are the most trusted and pioneer in Mutual funds information collection and advice . As per there website , they have rated funds in different categories with 5 star ratings .

ELSS (Tax mutual funds)

1. Magnum Taxgain
2. Sundaram BNP Paribas Taxsaver

EQUITY DIVERSIFIED

1. DWS Investment Opportunity
2. Kotak Opportunities

DEBT Oriented

1. UTI Mahila Unit Scheme
2. Birla Sun Life Asset Allocation Conservative

Source : Valueresearchonline

Some article related to this

https://finance-and-investing.blogspot.com/2008/08/all-eggs-in-single-basket-people-say.html
https://finance-and-investing.blogspot.com/2008/02/all-tax-saving-mutual-funds-are-not_9196.html

The Real face of FMP’s

Posted on by Jagoinvestor

People who have invested in FMP’s should read this … other should also . What is FMP : Read here FMP’s are considered as equivalent of FD’s , with better return , butits not exactly true … They are also risky and “lehman borthers”equivalent in India .. They are investing in sub-prime home loans inindia in the same way like Lehman did in US . Read a good report here : https://www.shyamscolumn.com/2008/11/know-your-fixed-maturity-plan.html Another article from Outlook money can be read here : https://money.outlookindia.com/article.aspx?sid=10&cid=57&articleid=7873 Note : This is just to show that people should not underestimate therisk involved with something … FMP rarely are considered as riskythings .. that does not mean , they can never collapse .. Read about Equity , Debt and Liquid Funds What is CRR and Repo Rate

Six Investment Rules which will help you to manage your emotions better and become a better investor.

Posted on by Jagoinvestor

This is a nice article by Charles Delvalle based on Investment Rules, i am just reproducing his work on this blog.

Have you ever been on a losing streak and felt like there was no way for you to make money in the markets? I think we all feel that way from time to time. It’s natural. After all, our emotions are never static.

Equity investment rule

The worst part is that when we’re in that mindset, we can actually create a self-fulfilling cycle. Maybe we’re trying too hard. Maybe we get sucked into a variety of different indicators that we never followed before. Or perhaps we get into one trade hoping that it’ll make up for all the losers we just had.

Nine times out of ten, it never works out though. The end result is that you lose more and more money. But it doesn’t have to be that way. So here are six simple rules for you to follow that will help you manage your emotions better and become a better investor.

Rule #1: Hope to make more money, fear to lose more.

In the book Reminiscences of a Stock Operator, this was one of the most important lessons that trader Jesse Livermore learned in his time as a trader.

When he got into a position and it started losing money, he realized that he had to get out of it quickly (cut your losses). So what he’d do was to fear that he’d lose more money and get out of the trade. On the other hand, if the trade was going his way, he would hope to make even more (let your winners ride).

Rule #2: Stick to Your System, NO MATTER WHAT.

This is a tricky rule to stick to, even for experienced traders. But the truth is this: If you have a system that you know for a fact works, then don’t stray from it. You will only end up losing money.

Why do investors stray? Sometimes it’s the feeling of invincibility they get after they’ve won a few trades in a row. Other times it’s simply because they are desperate to hit a winning investment. Whatever the reason, when you stray from your system, you stray from what you know works. Ignoring what you know is never a good way to make money.

Rule #3: Don’t become attached to your money.

Sounds easy, right? You’d be shocked how hard it is to actually implement. Too many people put money in the stock market that shouldn’t be there. If this is your retirement, or tax money, or money you owe to somebody, DON’T USE IT IN THE STOCK MARKET! Only use money that you can afford to lose.

Rule #4: Don’t play catch up.

If you’ve hit some losses in the stock market, the last thing you should do is ‘double up’ and hope to hit a winning trade. What if you don’t win? You will lose twice as much and be in even more pain.

Listen, losses are a part of the game. Every investor in the world loses money from time to time, but if you’re system works (rule #2) then stick to it and you should end up back in the green in no time.

Rule #5: Don’t over-analyze things.

I can’t tell you how many times I open up the Wall Street Journal and see an article that goes completely opposite to what I believe to be true about a particular sector or investment. Does that mean I listen to them? In all honesty, I look at the argument and see if it has merit. If it doesn’t, that’s it. I stick to what I believe to be true unless something drastically changes.

Equity sentiment roadmap

 

In my trading arsenal, I have a few indicators I look at and then have certain beliefs about the market and sector based on a few people I trust and what I know of the market. Everything else is just static. It’s only there to agitate you.

Rule # 6: Listen to yourself.

One thing I’ve learned is that as you trade, you find out new things about yourself. You find out what your true fears are (fear of success, maybe?), you find out your weaknesses (maybe not following your system to a T), and you find your strengths (maybe you make money best in certain sectors).

As an investor, you need to pay attention to all of these things. That way if a certain emotion is cropping up and threatening to lead you in the wrong direction, you could quickly stop it and move on.

Watch this video to know more about Investment Rules:

If you can stick to these six rules, you’ll be able to have a much better grasp of your emotions while you trade.

What do you like about this article? Do you want to ask any query? leave your reply in the comment section.

Introduction to Equities, Debt funds and Liquid Funds – For beginner investors

Posted on by Jagoinvestor

We will talk about Equity, Debt and Liquid Funds. We will also discuss dividend distribution tax is treated for all these funds.

mutual funds

First understand what is DDT (dividend distribution tax)

Dividend received from a mutual fund is tax free, but only at receivers hand. But mutual funds have to pay a tax on that dividend to Govt before giving it to us. So actually the tax is paid by mutual fund on behalf of us. This tax is called DDT.

Now lets go ahead and see different types on Funds.

Equity Funds

They are the funds that invest more than 65% of their corpus in equity shares of companies. The dividend distributed by such funds is exempt from the dividend distribution tax. So all the dividend which is declared comes to the unit holders, you get 100% of dividends.

But don’t think that this is some extra income .. it is just a part of your own money, after you get the dividend, NAV comes down by that much. This is difference between growth and dividend funds. You actually got some money back, nothing else.

Dividends are are totally tax free and not even DDT is applied to it.

Why to invest : You should invest in Equity mutual funds when you want to invest for long term and when you can take risk. Understand that these funds invest primarily in Equity, so there is more risk, but if you are investing for long term and want capital appreciation to happen, these are the funds for you.

Debt Funds

These funds invest in medium-to-long term debt securities like government bonds and corporate bonds/debentures. The dividend from these Funds are subject to 12.5% Dividend distribution tax. The fund is also liable to pay a surcharge and a cess of 10% and 3%, respectively, on the tax. The effective tax rate comes to 14.16%.

Why to invest : They are debt products and offer good liquidity also. If you want to invest some money for safe returns and for short term goal, then Debt funds are something you can look at.

Liquid Funds

These invest in short-term debt securities (which have a duration of less than a year) like commercial papers, certificates of deposit and call money. The income distributed by such funds is subject to an income distribution tax of 25%. The fund is also liable to pay a surcharge and cess of 10% and 3%, respectively, on the tax.

The effective tax rate for liquid and money market funds is 28.32%.

Why to invest : The main reason for investing in Liquid funds should be Liquidity factor, these funds are most liquid and least volatile .. So if you need to have liquidity in your portfolio, always invest some money in Liquid funds, any extra money lying in your Saving Account above your 1 month requirement should be in Liquid fund.

Conclusion :

There are different type of funds and they all have different purpose, you should see which one suits you and accordingly invest in that. Dividend received from mutual funds are not any extra money like Stock dividend. It is your own money.

Are you willing to buy term plan? – Here are some important tips you should know before buying term insurance

Posted on by Jagoinvestor

We will today discuss some of the best practices and must do things while taking a Term plan.

Click here to read what is Term Insurance and its Importance

Tips before buying term Insurance

1. Take a policy just before your Birthday.

Term Insurance premium depends on your Age. So if possible try to avoid taking the policy just after your Birth date. What i mean by this is that try taking it before you turn +1 year in age. If your Date of birth is 10/11/1983, and you take the policy on or before 10/11/2008, you will be considered of age 24.

But if you do a delay of 2 days … and you take a policy on 12/11/2008. You will be considered 25 yrs old and hence your premium will increase by 4-5%.

Note : It does not mean that if your birthday just passed by and now you want to take Insurance, then you should wait for another year. that’s not what i am saying 🙂

For example:

For a male with DOB on 10/11/1983 (24 yrs old), the premium for Rs 50,00,000 cover with tenure of 25 yrs, is 10157, if the policy is taken on 09/11/2008 (just 1 day before the birthday). Where as if he takes the policy on 12/11/2008, the premium will shoot up to 10647 (Rs 490 more) .. though 490 is a small amount, but if we can avoid it by taking the policy little early .. always try to do it.

Even a small amount like 490 saved over 25 yrs in a PPF would give 45,000 and in mutual fund with 12% return will give 77,000.

Note : The gist of the point is that try to see this small point while taking the Term insurance, it does not mean that you wait for 8-9 months just to take the policy before a birthday.

2. Try to diversify your Policy

If possible try to diversify your policy amount over different Insurance companies. If you want to take an Insurance of 50,00,000, it would be better if you take 2 polices, rather than 1 single policy.

How it helps?

– If you hold a single policy and the company does not honour the claim, dependents wont get anything, but if there are 2 parts, then there are less chances that both the companies with not honour the policy.

– If your liabilities come down or you have less dependents after a couple of years and ultimately you need to bring down your Life insurance cover, you can simply stop one of the policies and continue the other one.

– It helps in diversifying the risks involved with the Insurance company.

3. Buy a policy early in life and for longer Tenure.

Its always recommended to buy a Term Insurance early in life and for maximum tenure possible. In your early life you are more healthy and hence your premium will be lowest. Also by taking insurance for a large tenure you are making sure that you are covered for a large period, but the premium will be marginally more.

For example : For a cover of 50,00,000

Example - why it is necessary to buy term insurance early

 

You can see here that you have to pay marginally more for an extra cover of 5 yrs. So for example, a person with age 25 will pay 14,000 more than the 30 yrs old, but he will be insured for 5 additional years. So it always pays in long term.

Also taking a 30 years term insurance once will be very cost efficient than taking a 20 yrs term insurance now and then taking a term insurance of 10 additional years after 20 yrs. Because after 20 yrs, the premium you will pay for that 10 yrs tenure term insurance will depend on your Age that time and health that time.

Note : Premiums are from Aegon Religare Life Insurance.