Hemant Beniwal is the author of "Financial Life Planning" book - he regularly shares insights on Financial Planning, Retirement, Insurance & Mutual Fund. TFL is one of the best personal finance blog in India.
We all are born in a country which is known for its glorious past, history, heritage, various religions and amalgamation of various cultures.
But there is something more that leaves people across the globe intrigued which is our great family system that too A JOINT FAMILY.
This system is a close-knit bond that keeps us intact, secure and gives us a facelift when in crisis.
But if we go into a little detail we find certain cracks and crevices the major reason of this friction is MONEY.
There are a lot of factors like ancestral property, gold, joint ventures that may appear quite systematic and simple but happiness in such families is more of a facade.
Two or more brothers involved in the family business may have similar thinking and understanding but as the generation changes and so does their approach leading to the difference in ideas.
Besides societal compulsions, buying gifts, spending lavishly on weddings etc could be some factors leading to financial frictions in the family, friends or business associates. These were a few situations and very common circumstances that we all either confront or see around.
Do you know – More than 20% of the divorce happen due to financial friction. It’s not just because of less money or debt – sometimes more money means more problems. What about overspending, financial lies etc.
Being a financial planner I would like to share a few tips to explain that prevention is always better than cure.
ASSERTIVENESS AND CLARITY
The day your kid turns into an adult by the law get him a separate account and keep all his financial formalities done separately.
Your son or daughter should be explained about the importance of accounts, savings and investing money with appropriate guidance. They should be politely and be explained to steer clear of bad debts and loans.
If you and your spouse are both earning the role and responsibilities should be taken care of as healthy companions. With help and assistance of people like us the distribution of income, investment plans, assets and liabilities calculation should be planned. Check – Financial Infidelity – what to do
This suggestion is both for the elders and the younger of the family. All the elders want to follow and make their kids live in an ideal system which is a myth. The distribution of property legally, making of will and fair distribution of sources of money not only keeps family together but also saves them of lot of pain of court, disputes and helps them to flourish.
So we should be well equipped to handle and face any of them. All we need to cope with them is money which is a big factor that might lead to misunderstandings, stress, communication gap, differences and even fights among the family members.
So my dear readers as it is rightly said that money makes the mare go or might is right which is directionally proportional to the amount of money a person possesses. We all must have a fastidious approach and meticulous planning towards our future because whatever we do with our money is going to create either crisis or opportunities for us and for our family members.
Please feel free to share your views or questions in the comment section on Financial Friction. In case if you hide your names, feel free to be Anonymous.
Yes, our behavior towards our finances is a crucial aspect of optimum financial planning. Social, cognitive and emotional factors play an important role in financial decisions. Sometimes, they make us behave in a manner that is not in the best interests of our financial status.
Here are some examples of bad behavior –
Manas buys a stock that has appreciated in price significantly for the last couple of months because he has been hearing his colleagues talk about it and everyone around him has been buying it. He might end up buying it at a high valuation which can lead to losses later on
Shilpa invests her money only in bank FDs. She is scared to invest in any other assets fearing losses. This is irrational as she has to understand and analyze other investment options and decide on a healthy mix of investments.
Many financial products are heavily advertised. When it was time to file tax returns, Riya invested in a few random products that caught her eye to save some taxes. This is not the best way to make investment choices. Riya should understand her risk tolerance and financial situation and only then invest in appropriate assets.
What can an investor do in this situation where behavioral biases affect his financial decisions?
In some cases, an active mindful change in behavior will improve decision making. For example, in the examples above, Shilpa can visit financial portals and blogs to understand about other investment options.
Manas should let go of the herd mentality and research and analyze on stocks before investing in them. If he feels, he is inexperienced or not knowledgeable to do so, he can invest in equity mutual funds rather than invest directly in stocks.
Another important consideration that will help one in making better decisions is to entrust the financial plan to a financial advisor.
A financial advisor will help in many ways –Get your finances in order
You might be overwhelmed with all the work to be done to manage your financial life. A financial planner will easily get your portfolio in one place. He will set up nominations, joint holders and other banking and financial steps that will ease your financial life. He can assist in making a will and in estate planning. He can ensure that documentation is complete and accurate.
Support in tax issues
A financial planner can plan the taxes such that the tax outgo is minimal. He can help with solving issues related to tax.
Work with you on setting up and achieving your financial goals
When you set your goals, you might let your emotions color them. A financial advisor will give advice on setting your goals without any emotional bias.
He will buy and sell assets at the right time (not timing) based on your requirement without getting attached to an asset. He will sell off underperforming assets as he will not have any emotional attachment to them.
Unless we are highly disciplined, we tend to ignore regular review of finances. We forget to check our investments. Sometimes we do not remember to pay insurance premiums. When we are busy or face extreme emotions, finances tend to take a backseat.
The financial planner will manage finances and review investments regularly for his client. It is his job and he will not let emotions or surrounding situations affect financial planning.
Balance your emotions
When the stock market crashes and your portfolio shows a notional loss or you purchased a property a couple of years back only to see the real estate market stagnating, it is difficult to not be panicked.
You might take some rash decisions as emotions overcome logic. In these cases, a financial advisor can encourage you to think logically and suggest the best course of action. It might be to stay put with your investments or sell off some bad investments. He will give you a true picture of the financial scenario.
You are busy with work, family and social commitments. You may not want to spend time and effort in managing your finances with the doubt looming over your head that you may not be making the best decisions. In this case, it is better to have a financial advisor who already knows the stuff and can make decisions quickly.
The investment decisions of competent financial advisors will generally be better than those of layman investors which will result in saving money and also getting better returns.
Financial planning is not an easy task. It becomes more complex when behavioral aspects such as biases and emotions come into play. It is, therefore, a good idea to consider getting the services of a professional financial advisor. You need not to give full control but work with him to improve your financial future.
Retirement is an important phase in everyone’s life. There are sweeping changes that can overwhelm you if you are not prepared for it.
Before retirement, different aspects of life such as finances, health, time and activities have to be planned for. Most people do not plan for retirement in the right way.
Here are a few facts about retirement planning that are forgotten to be considered in the financial plan –
Forget Retirement – Target Financial Freedom
Retirement is not about age. If you have a decent amount to take care of your day to day needs & other goals you can be financially free. I will suggest you read this post – financial freedom tips
Health Insurance Vs Medical Corpus
When you are working, the employer might cover your health insurance needs.
But post-retirement, you have to take care of it yourself. It is more important as you grow older, but tougher to get.
Your insurance need gets rejected or you get it at a high premium. Most times, pre-existing illnesses are not covered or covered only after a few years of the policy being in use. Buy a comprehensive health insurance product and remember to be consistent about the premiums.
Few people think that they should create a medical corpus & that should be good enough. Not really if you encounter with a serious illness in the early years of your retirement. Medical corpus is required to cover things over & above your insurance.
Work on maintaining your health both physically and mentally so that you can have a peaceful life when you are retired.
When you are an earning member with dependents, it is imperative to have life insurance.
Once you have retired, there are other aspects to look at. If your family members are financially self-sufficient, it is not really required. If you have a huge debt (normally you should retire all your debts before retiring), then a policy may make sense. The proceeds can help to pay off the debt either in full or in part and your family members will not be burdened with it.
If your family depends on your pension (which will stop in case if you are not around), then some amount of life insurance is good. Some of us may have many insurance policies. It is a good idea to consolidate multiple insurance policies and continue with only those that are useful.
If you do not have debt and family members are financially independent, it does not make sense to have life insurance post-retirement. You can use that money elsewhere.
If you have sufficient assets to take care of your retirement need – life insurance is just a lottery ticket for your family members & should be avoided.
Products in Retirement are Different
When you are young, you invest in different kinds of products like PPF, EPF, Equity, Mutual Funds, Real estate etc. You have many goals and a long future ahead. You want to create wealth, earn income and save taxes.
So you invest in more accumulation oriented products than distribution oriented investment options.
When you are retired, you would want regular income from your investments. You want more liquid assets. Therefore your portfolio should be skewed towards distribution-oriented products. These products include senior citizens savings schemes, lesser real estate & maybe annuity if you are ready to understand the complexities.
Liquidity in your investment products is a must in retirement – it gives a sense of confidence.
The portfolio composition has to be in tune with the changes in your life. When you are younger and have fewer financial commitments, you can have an aggressive portfolio where the risk-reward ratio is high.
At the same time, you have to invest such that you will have a corpus to fulfill your financial goals like buying a house or ensuring a comfortable retirement. Invest early on so that the money you earned in the form of interest and dividends also gets invested and earns more money.
Due to medical advances, life expectancy is on a rising trend and therefore you have to have a portfolio that provides you with income throughout your retirement years. You need to have equity-oriented investments in your portfolio to beat inflation and build a good corpus.
The equity portion will have to reduce over a period of time as your age increases. Do you havesufficient assets for retirement & want to leave a large estate for your children? If yes, then you have to invest suitably to get higher returns and more growth. Which means you may want to continue to invest a larger portion of your portfolio in equity-oriented assets.
Many people have the same investments at 50 that they had when they were 30 years old. You are most likely to be in different stages of life at 30 and 50 and so your portfolio should suit the stage of life.
Review your portfolio regularly and tweak it to suit your goals and current financial situation.
Regrets in Retirement
Here are some regrets/wishes that people have shared about retirement –
I wish I had taken health insurance before. Now I have to buy at very high premiums.
I should have continued to work for some more years. I would have earned more and had a sense of purpose in life.
I should have planned my retirement better rather than thinking I would work till I am 58.
It is not easy to ignore the shiny new goods in the shops, the marketing of new products and the lure of a higher standard of living. We try to ape the lifestyle of buying bigger things and trying out everything as we are afraid of being left behind. This leads us to bad habits such as overconsumption, greed and mounting debt.
This kind of life is wasteful. It also leads to reduced savings, lesser investment and a materialistic lifestyle which at some point of time will break us down.
Even after spending all our hard earned money on various things, we do not get satisfaction. We are always searching for more. Put a FULL STOP to this life.
Let us look at ways to get out of the race of overconsumption –
If your income is not categorized at least roughly in this manner, you should make changes to your lifestyle. The savings are important for a rainy day as well as your retirement.
2. Budget and Pay off your debt
Make a budget and live within the budget. Pay off any personal debts and loans taken for consumables that you have taken in your country of residence. It is important to have a plan to pay off the debt and start investing in assets so that your retirement is taken care of.
3. Increase Savings and Investment
Set up long term and short-term financial goals and make sure you save and invest to reach those goals. Invest in different assets to get optimum returns and make your wealth grow.
Participate in the well-being of the less fortunate – You can help yourself by helping others. Share your fortunes with the lesser privileged people or the people at a disadvantage. You will be surprised at how good you feel and the level of satisfaction you reach.
4. Reduce Credit Card Usage
Credit cards are useful in case of emergencies. They are good for traveling abroad, reservations and earning reward points. You do not have to keep too much cash in hand if you have a credit card. But they are an easy tool to overindulge and overspend.
5. Spend time, effort and money on things that really matter
When you are really old and reminiscing about your life, you would cherish the time spent playing with your children rather than on your material acquisitions. To increase the quality of your life by building strong relationships with those that matter and experiencing the little treasures of life.
With the upcoming election year & current global issues, finally volatile storm has hit the Indian market. 2017 was such a smooth sail that investors almost forgot that equities can also go down.
Few think the “risk” as danger & uncertainty others think it is an opportunity. With this view, ICICI launches new fund offer (NFO) ICICI Prudential India Opportunities Fund.
ICICI Prudential India Opportunities Fund
ICICI is going to launch India Opportunity Fund which they committed suitability for investors who are seeking for long term investments.
This fund is seeking Opportunities in “special situations”. These are such situations that companies may face from time to time i.e corporate restructuring, Government policy and/or regulatory changes, changes in crude price, exchange rates, etc.
They are ‘very’ actively managed equity funds & performance will solely depend on how the fund manager deals with investment opportunities.
These opportunities can be stock specific, sector specific, industry specific, thematic etc. The opportunities can arise due to various reasons as mentioned in ICICI Prudential India opportunities fund brochure – check this
So now as we are aware of what these funds actually are, let us look out some pros and cons of these funds. I consider these products as high risk (bw high risk does not mean high return) as the fund may take concentrated bets.
It may go against the strategy of fund manager as they are particularly taken some specific sectors, Needless to say, such concentrated portfolio carries a higher risk than a portfolio that is well-diversified across sectors, themes, industries, market caps, etc. that’s why I considered it high risky too. It will be in our favor if the fund manager uses the flexibility of diversification.
So basically, it is for investors who have high risk-taking appetite. But wait…
Fidelity Special Situation Fund Vs ICICI Opportunities Fund
I still remember that Special Situation was one of the first funds that Fidelity introduced in India. Fidelity was one of the rare breeds of fund house which was not in the favor of increasing pollution by adding funds every now and then. Internationally they successfully ran special situation strategy & that was one of the reasons they launched that in India.
Fidelity sold out their business to L&T mutual fund & fund was renamed L&T Special situation fund. Recently when SEBI introduced Mutual Fund categorisation – L&T converted that fund to normal Large & Mid Cap fund.
Even after fidelities huge experience to manage such strategy – fund performed average till 2012. Even no major changes after that. (it’s important to notice that Fidelity Equity fund did pretty good in that same period)
Check this video – ICICI’s view
I respect Shanker Naren as a fund manager but as I worked with AMCs like HDFC Mutual Fund & JM Financial – I know sometime role of Fund Managers is also like a salesperson. So we should take his words with a pinch of salt.
We should be even more careful after the game to take investors for ride unfolded by SEBI – complete violation of rules by ICICI Mutual Fund in the case of ICICI Securities IPO. Forgive but don’t forget.
Naren's take on ICICI Prudential India Opportunities Fund New Fund Offer - YouTube
I don’t know why in video they have mentioned this is for distributors & not investors. They have shared this on their youtube channel so I am sharing.
We as an advisor don’t suggest NFO & we also suggest keeping exposure in simple vanilla diversified equity funds. So even ICICI Prudential India Opportunities Fund is a NO from our side.
Let’s understand this by asking a few questions –
If fund manager expects that such opportunities are there why they will not take these stocks in other diversified funds?
When the world is moving towards passive investing because alpha generating is not easy – why one should take exposure to such fund?
Why not let’s wait 1-2 years & check the performance & then take exposure?
Why ICICI Prudential India Opportunities Fund is launched now – such opportunities should have always existed in the market?
Is NFO an Opportunity to (MIS) Sell
I don’t mind repeating this here if this can help investors…
An NFO or New Fund Offer is an offer for investors to subscribe to a newly launched MF Scheme launched by a Mutual Fund House.
An NFO is marketed as an IPO but they are different. An IPO’s price is determined by demand and supply whereas the NFO scheme is priced at Rs. 10 and any number of units can be issued. It is used as a marketing device by Fund houses. It is a tool to get more investments – ICICI is targeting 2000 Cr.
If it is a close-ended fund then the investor can buy the units only during the subscription period and will have to hold the units for the said period, whereas in the open-ended fund, one can buy units even after the subscription period is over and can redeem it at any time.
It is risky to invest in NFOs on the basis of the ‘Low Price’. Moreover, there is no past performance to assess it.
Still, Mutual Funds awareness is low – lower NAV is mis-sold as something available cheap.
Going forward we may see more NFOs – there are 2 main reasons:
Markets are still not in bad shape & investors are optimistic – that’s a good time for asset management companies (AMC) to raise money.
SEBI has reduced expense ratio on bigger fund – which means lesser income for AMCs & advisor in those funds. New funds can be a motivation for earning better revenue – who would like to miss higher income?
You can answer the questions that I raised & then take a cool-headed decision on ICICI India Opportunities Fund.
It’s time to stop making haphazard decisions about your INVESTMENTS
and instead talk to us about your GOALS.
Financial Planning Service
If you have any questions or observations regarding this fund feel free to add in the comment section.
I don’t think I need to emphasize how important it is to plan for your retirement. Searching for the best retirement plan in India is not sufficient.
Have you thought about your financial requirements post-retirement? Some important questions to ponder about –
How much money will I need on a monthly basis when I am 68 years old?
How will I handle a financial emergency?
Have I made financial arrangements in case of my spouse gets hospitalized when we are retired?
How much you will need in retirement?
Let us assume that currently, your monthly expenses are about Rs. 25,000 per month and that you will retire about 30 years from now. With a 6% annual inflation rate, you will need approximately Rs. 1,43,000 per month post-retirement in the year you retire.
It will obviously increase in the succeeding years due to inflation. If you do not expect a similar lifestyle when you are retired, let us assume that you will incur 80% of the expenses today. In this case, you will need about Rs. 1,14,000 per month in the year of retirement.
How do you ensure that you are covered financially post-retirement? By planning your retirement well in advance. You can decide on the best investment products to invest in that can protect you from financial uncertainty during retirement.
Here are a few products and examples of those products which can be used to plan for your retirement.
Traditional Pension Plans
A traditional pension plan is an investment product usually managed by Life Insurance companies. The individual will buy a plan and pay the premium either on a periodic basis or as a lump sum amount. There are different types of traditional pension plans –
Immediate Annuity – The individual receives payments immediately after purchase of the product.
Deferred Annuity – The premium will be paid on a regular basis and the individual can decide when to get the pension. It can be taken on a regular basis or as a lump sum amount.
There are other sub-options available within these two main options whereby the individual can decide whether he/she wants a pension for life or whether the spouse should get the pension after the individual’s death or if the pension is to be given for a certain timeframe.
Best Retirement Plan of LIC
LIC Jeevan Akshay is considered as one of the best pension plan after retirement by many. But we are not writing much on that here because we already have done a detailed review (also discussed a lot about annuity) – you can check – new LIC Jeevan Akshay annuity plan
Here are examples of best private retirement plans –
Max Life Guaranteed Lifetime Income Plan
HDFC Life Pension Guaranteed Plan
Type of Plan
A single purchase price traditional retirement plan.
There are four options for annuity payouts.
There are options for Return of Premium on death.
Single Premium Annuity Product.
There are plans for deferred annuity and Immediate Annuity. It is available for single life and joint life basis.
Guaranteed fixed income throughout the life of the subscriber.
If it is a joint annuity product, fixed income will be payable until at least one subscriber is alive.
Different options for payouts/ annuities based on different time periods as long as the subscribers are alive.
Minimum Purchase Price/Premium
The minimum purchase price is Rs. 1,00,000
The minimum purchase price is Rs 76,046 for Deferred Annuity
The minimum purchase price is Rs 160,261 for Immediate Annuity with return of purchase price.
Traditional pension plans offer guaranteed returns. But their terms are inflexible and the annuity may not be enough to sustain the lifestyle one is used to as most plans offer a return between 4%-7%.
For example, the HDFC pension joint annuity plan purchased for Rs. 1 crore will give an annuity around Rs. 7,00,000 per year.
If you purchase a joint annuity plan of Max Life Guaranteed Lifetime Income Plan, you will receive around Rs. 6,70,000 per year
Moreover, annuity proceeds are taxed. So you might want to compare different options and analyze your reasons for buying a traditional pension plan.
Unit Linked Pension plans are similar to traditional pension plans but add the flavor of equity. These products invest the amount collected from subscribers in bonds, stocks etc. The returns are market linked.
Even maturities of these products are expected to be invested in annuity products.
Here are briefs on a couple of products which will give you an idea about them –
Empower Pension – SP Plan is a ULIP from Birla Sun Life Insurance. It is a single premium plan. The minimum premium is Rs. 1,00,000. The investor can choose a risk profile and the funds will be invested based on the risk profile.
At the end of the term, the investor will receive the greater of guaranteed vesting benefit or the fund value on vesting. The investor also has the option to convert to a deferred pension plan as available or extend the period provided the investor’s age is below 80 years. The disadvantages are that the risk profile cannot be changed and there is no life cover.
HDFC Life Click 2 Retire Plan is a ULIP which has single and multiple premium payment options. The minimum premium amount is Rs. 24,000. A death benefit is available. At the end of the term, the investor will receive the greater of guaranteed vesting benefit or the fund value on vesting.
The investor also has the option to withdraw 1/3rd amount and buy an annuity plan from HDFC Life with the balance or defer the vesting period provided the maximum vesting age remains at 75 years. 100% of the premium paid is invested. The investor has three options on how his funds should be invested based on his risk profile.
ULIP pension plans are more expensive as compared to traditional pension plans. Most of them do not offer a lifetime income flow and the returns can be erratic. If you would lie to reduce tax liability on maturity, you are forced to buy an annuity plan which might or might not be beneficial to you.
On the other hand, ULIPs have the potential to give better returns and have options to exit from the product easily. The disclosure norms are more strict for ULIPs and that ensures transparency.
Mutual funds offer retirement plans or pension plans. These plans invest in a mix of equity and debt products depending on the investment objective of the product. The key features are –
Investors can invest a lump sum amount or through the SIP route. Withdrawals can also be on a lump sum basis or through SWPs.
These funds have a lock-in period of 5 years or till the retirement age(whichever is earlier).
Exit load on premature withdrawal in most funds.
The investment usually also qualify for Section 80C benefits under the Income Tax Act.
Unlike other products, one does not need to buy annuity products to withdraw the corpus
Returns are taxable
The standard retirement age is taken as 58 years. Post-retirement, the investor can make a lump sum withdrawal or opt for regular payments. The balance units after the withdrawals will continue to be invested and grow.
Let us look at a couple of products in detail –
Reliance Retirement Fund – Income Generation Scheme (G)
UTI Retirement Benefit Pension Fund (Growth Plan)
19% of the corpus – invested in equity
81% corpus – mainly invested in debt and held as cash
38% of the corpus – invested in equity
62% of the corpus -mainly invested in debt and money market instruments
1 Year Returns
3 Year Returns
2.25% (Oct 2018)
1.91% (Oct 2018)
No Exit Load if you withdraw after the retirement age else the exit load is 1%.
Redemption/Switch within 1 year – 5%
Redemption/Switch between 1 & 3 years – 3%
Redemption/Switch between 3 & 5 years – 1%
Redemption/Switch after 5 years or after retirement age (58 years)whichever is earlier – 0%
MF Retirement plans have greater potential for returns and capital appreciation. If you use the SIP route, you will be coerced to be a disciplined investor.
Investments in MF retirement plans also qualify for Section 80C benefits under the Income Tax Act.
On the other hand, there is a higher element of risk involved and pre-mature withdrawal is penalized. Expenses involved will also be more as compared to traditional pension plans. Moreover, you do not have much flexibility in deciding the asset allocation. It is probably better to invest in Mutual Fund schemes that satisfy your investment objectives and have a portfolio that is suited to your requirements.
NPS or National Pension Scheme is a long-term retirement focused investment product. It is managed by the Pension Fund Regulatory and Development Authority (PFRDA). Here are the key features –
An individual can invest in NPS between the ages of 18 and 60 years.
Minimum investment amount per year – Rs. 6000 and Maximum investment amount per year – Rs. 2,00,000
The employer contributes an equal amount as the employee has invested in the scheme. It is mandatory for Central Government and State Government employees and optional for others.
80% of money withdrawn before one becomes 60 years old must be used to buy the annuity for a monthly pension. If the amount is withdrawn after the age of 60 years, 40% of it should be used to buy the annuity and the rest can be deployed as per the person’s wish.
Amount contributed towards NPS qualifies for deduction up to Rs. 1,50,000 under Section 80CCD. Another Rs. 50,000 can be treated as a deduction.
The annual returns from NPS are also tax- free. When the amount is withdrawn before or after the age of 60, the amount left after buying the annuity is taxed. The pension received on a monthly basis will be taxable as per the tax-slab that the person falls under.
The NPS subscriber can determine the asset allocation for his investment.
NPS is a good long-term investment product. The returns are good and the costs involved are minimal. Moreover, the investment is managed by experts.
During the deferment period, one has to invest till 60 years and then start getting an annuity from a life insurance company on 40 percent of the corpus, while the balance can be withdrawn. The return during the deferment period and neither the annuity (pension) are guaranteed and entirely depends on the underlying asset classes which can be equity, corporate. Check – National Pension Scheme Benefits
Atal Pension Yojana
Atal Pension Yojana is a pension scheme mainly aimed at the unorganized sector. It is for the people with the blue collared jobs. In many companies, these employees do not get any pension. This scheme allows people between 18 years and 40 years to choose a pension based on the contribution done.
There is an option of getting a fixed pension of Rs 1000, Rs 2000, Rs 3000, Rs 4000, or Rs 5000 on attaining an age of 60. The pension will be determined based on the individual’s age and the contribution amount. On the death of the subscriber and subscriber’s spouse, the nominee will receive a pre-determined corpus. The amount collected will be invested as per regulations.
Here is an example of different amounts that are required to be paid for starting the account at different ages for different pension amounts.
For Monthly Pension of Rs. 2000
For Monthly Pension of Rs. 4000
Age of Joining the Scheme (Years)
Contribution Period (Years)
Return of Corpus To Nominee
Return of Corpus To Nominee
(Sample data is listed here)
If you are 30 years old, you would contribute a total of Rs. 83,160 and the total returns considering a life expectancy of 80 years will be Rs. 8,20,000. But do remember the inflation factor and that the corpus will be received by nominee after the death of the subscriber.
It is important to plan retirement as early as possible so that we are secure from a financial aspect. There are many investment products available for retirement planning. Choose to invest based on their features and how they suit your requirements.
Normally we suggest our clients that don’t mix insurance & investment. We also suggest that there are a lot of good investment products before retirement so don’t get stuck with your hard earned money in a long-term product. You can accumulate assets & on retirement, you can decide if you really like to buy an annuity.
We have years of experience in Financial & Retirement Planning. We will help you get the most of your Retirement.
Don’t just Retire. Live a Happy and Healthy Retired Life.
With the substantial increase in medical cost & new developments in medical technology – it’s a very common question these days – How much Health Insurance do I need?
This question has become even more important after the launch of PMJAY – where poor will get Rs 5 lakh health coverage.
With my 15 years experience of working with individuals on their financial plans – I am confident that most middle-class people are undercovered when it comes to health insurance.
Note – You can also get “How to choose health insurance – checklist” from the end of this post.
How much Health Insurance do I need?
Unlike life insurance, there is no straight formula to assess how much health insurance coverage you should have.
You need to understand the type of policies available and then match any of them with your perceived medical needs.
There are health plans tailored to meet various needs from those of a student to those of elderly people. Each of these is beneficial at different stages of your life cycle. So, you should evaluate plans according to the phase you are in.
Identifying health costs is the most difficult part of medical insurance as there is uncertainty regarding what type of illness may arise. But a reasonable assessment can be made based on the cost of medical treatment you might have to incur in the case hospitalization.
Since the cost of medical treatment varies from city to city, the first level of assessment should be a hospital whose services you would avail in case hospitalization is required. So, think about the following before you decide how much health insurance you require:
Which hospital would be your first choice for treatment, if any medical emergency arises?
How much is the approximate cost of hospitalization there?
This will give you an estimate of your potential healthcare costs and should form the basis of your decision regarding how much health insurance coverage you need to purchase. There is always the chance that you will have to resort to bigger hospitals in case of specific illness; so keep that in mind too.
While determining the quantum of health insurance you have to purchase, also consider the benefits already available to you through schemes like Group Insurance from your employer. All this will help you to reach the figure for the amount of coverage you will need while dealing with medical emergencies.
Amount of health insurance required
Medical inflation is estimated at 15% in India. The prices of medical procedures and healthcare have been rising steadily. Therefore having health insurance is a basic requirement. The important point is to determine the amount of health insurance.
The following are factors to consider for health insurance –
Age – When you are in your 20s, you generally do not need a big cover. You can consider a health insurance of Rs2,00,000 to Rs. 3,00,000 for yourself and then increase it gradually as you enter your 30s and 40s. It is good to increase it by 10%-15% at intervals.
If you need to buy a health cover for your parents or spouse and children, then you should consider their age, lifestyle and health. You can look for family floater plans.
Affordability – Health insurance premium is an important factor. You need to determine what how much you can afford. When you are in your 40s or 50s, it is important to have a substantial amount.
But if you cannot afford, it is still better to buy a smaller cover as any financial assistance during a medical emergency is useful. Percentage of your income goes towards the premium.
Lifestyle – Do you have a healthy lifestyle or are you a person who has a high-stress life or has no time to exercise or follow a healthy diet. If your job entails travelling a lot, it might be difficult to have a regular exercise routine and you might have to eat unhealthy meals. In such cases, it is important to have a good amount of health coverage.
Family History – If your family has a history of obesity, diabetes or any other such lifestyle disease, there are high chances of the next generations to get it. It is then important to have the right health cover.
Requirements – There are different types of policies other than simple health insurance. There are accident covers, senior citizens plans, critical illness insurance plans etc. You have to determine your requirements and buy appropriately.
There are other factors too. If there have been high medical expenses in the past, it might make sense to take a substantial cover. If you want to ensure a certain hospital, a certain doctor or the type of patients facilities in hospitals, you need to make sure your health cover takes care of these requirements.
If you are employed, the employer might be offering you a group employment plan. Check its coverage and buy more insurance if required. It may not be very comprehensive and have limitations.
You can consider that your sum assured should be sufficient to take care of artery bypass in a hospital of your standard. or
It can be 50% of your income – if you are earning Rs 15 Lakh, you can consider 7.5 Lakh policy. or
It should be minimum Rs 5 Lakh.
Views of insurance experts on Health Insurance coverage
“A young family living in an urban area should be a floater cover of Rs10 Lakhs, supplemented with the maximum top-up available, taking the cover to around Rs20-25 Lakhs.” Mahavir Chopra
“For a middle-class family, minimum sum assured of Rs5 lakh is necessary. One can opt for a floater policy and if the parents are included the sum assured can be Rs7.5 lakh. Over and above this a ‘top-up’ plan can be bought.” Nayan Shah
Here are a couple of health insurance plans and their premium amounts –
1) The Optima Restore Individual health insurance plan from Apollo Munich for a 35 year old person living in Mumbai for a sum insured amount of Rs. 5,00,000 is Rs. 8,431 per annum including taxes.
2) SBI General has a family plan for 4 people living in Mumbai with the primary person of age 35 years and a sum insured amount of Rs. 5,00,000. The premium payable is Rs. 16782.