Money Matters

A ‘Share’ or ‘Stock’, to put simply is a share in ownership of a business. When you buy a share you basically get ownership of a percentage of the business. Let’s understand this with an example. Consider Mr. A’s life is a business. When, Mr. A was born, a startup was established. He went through the school and now wants to go for higher education. But, Mr. A doesn’t have money to go to college, so, he gives an advertisement in the newspaper, that whoever will give him 5Lacs for going to college, he will give that person 10% of his income for lifetime, this is called public issue or IPO (Initial Public Offer). Now, people study this person’s school grades, his intelligence, the course for which this person is going for since, it may impact his earning capacity, his nature whether this person will work hard enough to pass through college with good grades.  Depending on all this information, people will calculate what kind of income Mr. A can generate, and judge if they want to...

So after deciding the policy and the payment term , you proceed ahead, enter your basic details and now comes a page asking you to select add-ons. Sounds a way how we order in ice-cream parlor. And just like ice creams some add-ons are good and other are not so much. So let’s start on them. What are Add-Ons? These are toppings to your plain vanilla ice-cream or insurance. These may either make your term insurance comprehensive or complex depending upon what you add on. Of course, you need to pay extra for these add-ons. Some of the popular and most common add-ons are : 1. Return of Premium   : Under this rider, all the premiums paid will be returned on surviving the policy term. Do note that there will be no interest paid on this, and just the total premiums paid will be paid back. While, this may sound good, do consider the time value of money. If you pay, Rs.15000 for a policy for 30 years, after 30 years you will receive 4.5Lacs. What will Rs. 4.5Lacs be worth afte...

Continuing our previous article on the policy payment term to be selected, we will continue from the second question that is often asked. “Should I buy insurance till 85-90 years of age, as it guarantees that our nominee will get the sum assured?” As already seen in the Part 1 of the Perfect recipe for Term Insurance , the time value of money plays a major role in calculations of premiums and payouts. Coming straight to the point, let me ask you if an insurance payout by the time you reach 85-90 years of age, enough? Let’s calculate. What you pay v/s what you get? I have compared the plans from Max Life insurance for a 25 Years old non-smoking male. There are 2 plans that I am comparing, one offers insurance till the age of 60 Years and another till the age of 85Years. Shown below are the premiums for both of these. Sum Assured 1,00,00,000 Age (In Years) 25   Plan 1 Plan 2 Cover Till...

One of my friends asked, “Should I Buy term insurance cover till I reach 85 years of age, to get a guaranteed payout?” and another friend asked “Should I opt for limited payment term? It will save me a lot of money.” The answer to both of these questions is ‘Yes, You Should!!’. But it can be so, only if there is no concept of time value of money. Consider the value of money in calculations and you will get an answer that’s opposite to what a simple calculation will denote. To explain this, we have launched a 3 part series of Ingredients to a perfect recipe – Term Insurance, wherein we will analyze all the important things to consider for ensuring you family’s financial security. What is Time Value of money? The price of a material may change in future, these changes may increase or decrease the value of money. This concept of change in value of time is called time value of money. For eg. you may buy sugar for Rs.50/kg today, however, after one year if the cost of sugar increase...

So, how much would you require during retirement? It's difficult to guess and even more so to calculate. Considering the variables and calculations involved, it becomes difficult to arrive at a particular number. So, in this article we will simplify this calculation for you. What Is this All About? Well, we have derived a formula to ease your tension (at least from calculation perspective). That formula is ‘1-30-6’ (Pronounce it as 136).   It says, that in 30 years, your monthly expenses will be an amount equal to your 6 months expenses today, considering current lifestyle is maintained. This rule improvises and builds upon another rule of retirement, the rule of 4%, which says that you should not withdraw more than 4% per annum from your retirement fund. For eg. If you are spending Rs.100/month currently, you should start your retirement panning by assuming that in 30Years you will need Rs.600/month. So, Annual Expense       ...