Investorz Club - Stock Market Blog by Amit Agarwal
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Unlike car and life insurance, home insurance in India is a relatively new concept among majority of people in India especially Tier 2 and Tier 3 cities. But with majority of homes now being purchased on a mortgaged loan from banks, the buyers are increasingly being made aware about the benefits of taking house insurance and home appliance insurance (household articles) along with the loan. In some cases banks are refusing to offer loans without a home insurance policy to safeguard their interest in worst circumstances.
So what is a Home Insurance?
In simple terms, it is a protection against named damages to the house. Just like a car is insured to protect the owner from incurring expenses in case of road accidents, a home is insured to protect the owner from incurring expenses from accidents or emergencies such as fire, cyclones etc.
What is the amount covered by the home insurance policy?
The insurance policy takes into consideration the cost of rebuilding the house/apartment/flat while the valuables in your house are insured based on the current market value.
How to claim your insurance?
The process is simple and similar to car insurance. The first step in claiming insurance against damages to your house is to call your insurance provider (helpline or agent) and explain the incident. The insurance company will send their representatives to your house for inspection and you will be required to submit relevant documents. Once verified and admissible loss, claims processed and disbursed.
One must read all the terms and conditions of the policy before selecting one as each policy has a set of exclusions. These exclusions will depend on the type of insurance policy you are purchasing and will vary from one insurance provider to another and one kind of policy to another.
Is Home Insurance Policy expensive to purchase?
It might appear like an unnecessary and unwanted expense, but the benefits of having your home and its content insured far outweigh the cost of buying one. An INR 25 lakhs home / flat can be insured for as little as INR 1500 per year. Additionally, a comprehensive policy, covering even the contents of the house, can be bought for less than INR 4,000 per year. At such nominal rates, it’s quite inexpensive to get your home insured.
What happens to the Policy if the House is sold?
In case the house is sold, then the owner of the house needs to inform the insurance company and get the policy cancelled.
Is land covered under Insurance Policy?
A home insurance policy is valid only for the building / flat and household contents such as appliances, furniture & fittings. It does not cover the land.
Can Tenants buy an Insurance Policy?
Yes Tenants can buy a household article insurance which covers the content of the house they are living in.
Imp: Maintain proof of all your insured items in order to claim them when required.
A Goal Without A Plan Is Just A Wish”- Antoine de Saint-Exupéry
We set goals all the time. For instance: losing 10 kilos, eating healthy, running a marathon, writing a book and so forth. But financial goals, which are themost life-changing goals of all, are often put on the back burner.
Accumulating funds for children’s education, building a multi million-dollar investment portfolio or starting a business can all seem a bit too hard. But it doesn’t have to be that way. With the rightfinancial instruments, plans can be put into place, and everlasting happiness can be attained!
Here are two such investments that can help achieve your family’s financial goals:
1. Term Insurance: To Meet the financial Goals in Your Absence
What is Term Insurance?
A type of life insurance plan, term insurance protects your loved ones financially by providing an assured lump sum amount, which acts as a replacement income in your absence. This amount not only assists your family to pay for household expenses and outstanding debts but also enables them to meet goals like fulfilling your child’s educational aspirations or starting their business.
How Does Term Insurance Benefit Your Loved Ones?
The primary benefit of term insurance is that it takes care of your loved ones in your absence. Your absence can never be compensated with money; however, your family may be dependent on your earnings. After your demise, they will not only suffer emotionally but also financially. Term insurance can assist them financially in such hard times.
How Can Term Insurance Help Fulfill Your Family’s Financial Goals?
If you hope to provide the best education to your children, save for their marriage and ensure a peaceful retired life for your better half, term insurance plans can take care of these desires in your absence.
Term insurance plans assure you that the financial side of things will be taken care of even if something untoward happens to you. For instance, if your family receives the death benefit worth Rs. 1 crore after your demise, a part of the amount (10 to 15 lakhs or as required) can be used for higher education of your child.
If you want to make your term plan more comprehensive, look for adding riders like ‘Critical Illness Rider’ and ‘Accidental Death and Disability Benefit Rider’ which are provided by reputed insurers like Max Life Insurance.
2. ULIPs: To Finance Your Children's education
As parents, your children are usually at the center of your financial decisions. For them, you dream of education in a prestigious university or sending them abroad for higher studies. For this purpose, you would want to look for an investment product that gives you decent returns over the long-term along with a safety net of life cover.
A Unit-Linked Insurance Plan (ULIP) can work well in this context. ULIPs offer you the benefit of life cover along with savings in the long run. They are the ideal investment instruments, especially for those who are ready to commit to a long-term wealth creation plan. Moreover, you get the option to invest in different types of funds as per your risk appetite (equity, balanced and debt funds).
A well planned ULIP policy can be a timely support to meet certain important expenses in your life. For example, if you start a 15-year-long ULIP policywhen your child is one year old, it will mature around the time when your child is planning to go for higher education. Thus, allowing your child to receive the best possible education.
Simply put, a well-timed ULIP policy can be a big help in meeting crucial expenses such as studying abroad, planning a wedding, buying a house or starting a business.
Review & Revise:
Investing for your family’s financial goal is not a one-time exercise. To be on top of your game, it’s crucial that you evaluate the progress made by your investments every year. Doing a yearly review will help you understand how your investments are faring, and if required you could restructure your plan.
So, whatever your family’s financial goals are, now you have a road-map on how to achieve them. Although making investments now may sound a bit heavy on your pockets, but you will deserve your reward when you get there: the dream home you have been saving up for or the best quality education you desire for your child.
You just have to make the right investments and stick to them!
Personal Loans are a great a way to tide over your short term financial need as it requires relatively less documentation, quickly disbursed and doesn’t require any collateral. The interest rates these days offered by banks and financial institutions are also very competitive especially for borrowers with high credit score. But there are certain vital things that one should keep in mind regarding personal loans:
Avoid Applying for loans with too many banks: This is a very important point as not many people are aware of this fact. You need money urgently and you might be tempted to apply with multiple banks in case your desired bank doesn’t approve your application. With advent of online banking, it has become very easy to apply for personal loan online with several banks. This is a bad strategy in this case. Every time you apply for a loan with a bank or any financial institution, it will check your Credit Score on CIBIL. Now with each credit score check your overall credit score comes down a little bit. Now if some four - five banks check your Credit Score at the same time it’ll hamper your score in a meaningful way, which in turn will pose a problem in getting your loan sanctioned. Also lower credit score result in higher personal loan interest rates.
Avoid taking large loan amount: Just because personal loans are structured in such a way that you don’t have to discuss the reasons for taking one, it doesn’t mean you try to get as much as you can. Take only as much as you can afford to repay. Taking a loan amount more than you can afford to repay on time will put you in a debt trap.
Avoid long tenured personal loans: A Personal Loan, however simple and easy to avail, is a debt and you must repay it as soon as possible. A long tenured EMI has relatively higher interest component and thus defeats the purpose of solving your money problem. Unless absolutely required and part of the plan, keep your loan tenure as short as you can.
Avoid taking too many Personal Loans: This is again a very important point that most people overlook and hence make a mistake. Don’t take more than one personal loan even if you have not been given the amount you originally needed. Try to make up the amount by borrowing it from somewhere else such as family or friend. By doing this you will save yourself from suffocating under a heap of debt and the issues around managing all the loans.
Avoid missing your EMIs at all cost: Once a bank has given you a Loan, it expects timely repayments (EMIs) as well. Make sure you do not skip any of your EMI payments by the due date. Missing an EMI payment affects your Credit Score and from the next time the banks will hesitate to give you fresh loans in the future.
Avoid using loan money for speculative activities: Once the money is in your bank account you might be tempted to invest that in the stock market or other speculative activities in search of quick return. But what if the bet turned otherwise? Things will pretty much go downhill from there. For investing in speculative activities use money that is set aside specifically for this purpose and avoid using a personal loan here.
Avoid using the loan money for discretionary spends: Because a personal loan does not require the borrower to use it for a specific purpose, you might get tempted to use it for discretionary spending such as shopping, going on a holiday etc. This is highly warranted and one should only use personal loan money for valid financial emergencies.
If you are reading this you are definitely looking for improving your CIBIL score (the most widely used credit score referred by lenders to hand out the loans) and this article will certainly help you in achieving this objective specially if you haven’t taken a loan before.
Since you don’t have a credit history the lending institutions will hesitate to approve your loan application especially medium to large ticket sized loans for items like Cars, Home etc. Let’s first understand the range of scores assigned by credit rating agencies and their grades:
Credit Score Ranges
0 or -1
No Credit History
550 - 300
750 and above
If you fall into the first three categories of the above table, not only there is higher chance of application rejection but also the cost of loan is going to be higher, which is the interest rate you pay on the loan amount. The only way to improve your credit score is to make timely payment on your dues and in short term that can be done either by having a credit card and paying all its dues timely every month or you can improve your Credit Score with Personal Loans.
While improving your credit score with personal loans is relatively easy & quick, Credit cards are expensive to maintain and most of the basic credit cards have annual charges on top of very high interest rates and penalty in case you miss the deadline by even a day. On top of that there are several things to keep in mind (mentioned in general guidelines below) while using a credit card so that your score is not hampered for the lack of knowledge.
So what is a snowball effect and how can a personal loan help improve CIBIL Score fast?
To start building or repairing your CIBIL score, you can use a personal loan and pay all your EMIs on time. Always use 30% of your available credit line. Such small personal loans are easier to pay and help improve your CIBIL score incrementally. This method of improving your CIBIL Score or any other credit score is also known as 'Snowball Effect'.
For instance, if you have a salary of 20,000 INR per month and have never taken a loan or used a credit card previously, your credit score will be 0 or -1. However, online loan providers like PaySense can offer you an instant personal loan of Rs. 5,000 to 2 lakh; which you have to repay in a duration ranging from 3 months to 24 months. Let’s assume that you take a loan of 5,000 for 3 months and pay your EMIs regularly on time, your credit score will start increasing. After 3 or 4 such short-term instant personal loans which are easy and affordable to pay, your credit score will improve to 650 and above within a year.
Following are eight general Do’s and Don’ts guidelines for your credit score:
Pay all of your EMIs on time. Your payment history makes up 35 percent of your credit score. Even one late payment can lower your score dramatically.
Don't close any credit card accounts just before you apply for a loan. Credit utilization, the amount of all revolving debt divided by your overall credit lines, accounts for 30% of your score. The more credit you have available to use, the lower your credit utilization. The lower your credit utilization, the higher your score. When you have more credit available, you have a better chance of getting a desirable interest rate on the loan. Wait until after you secure the loan to close the card.
Call your lenders to have your credit limits increased. Increasing your limit decreases your credit utilization, which increases your credit score. Even if you have a secured card, you might be eligible for a credit line increase if you’ve been making timely payments.
Do review your credit reports at least once per year to make sure you aren’t a victim of identity theft. Having items listed on your credit report that aren’t yours can negatively affect your credit rating.
Do request copies of your credit scores at least a few months before making any major purchases, such as a home. This will allow you to take simple steps now to help get your credit in the best shape for that loan down the road.
Don’t transfer a balance to an account with a lower limit, as this will increase your credit utilization.
Don’t assume that neglecting bills that are not reported to a credit bureau, like utilities is allowable. Should these bills go delinquent, they might be sent to a collection agency. The biggest motivating tool for getting paid used by collection agencies is reporting the delinquent account to the credit bureaus. Anything reported by a collection agency can sink your rating.
Create a plan to pay down your debts and stick to it. Not only does carrying a high balance on a credit card cost you lots of money in interest, it also drags down your score. To pay down balances as fast as possible, pay off debts with the highest interest rates first.
Significant panic witnessed in our markets due to IL&FS issue which lead to very sharp corrections in some of our stocks we hold in our portfolio. This was largely expected and we were more than 40% invested in liquid bees. Deployed all the cash today to bring down the cost of some of our holdings and also added a new name which I feel could be a potential turn around candidate as the sector itself is at the cusp of turnaround.