Weekend Roundup – Jan. 26th 2014

Its been a while since I wrote a roundup post. Haven't been able to find the time to squeeze it in. This week I have some news to share. So here goes:

1. Series on financial planning

I am writing a series on financial planning at Market Express a finance portal.

The first part: Financial Planning: Using Common Sense to Achieve Fiscal Fitness was written in Sep. 2013.

After repeated prodding by the editor I managed to write the second part: Financial Planning: baby steps with perspective

I would appreciate your feedback on these articles

2. Risk and return

An interesting article on the relationship between risk and return

3. Laddering Term policies

The previous post Laddering Term Life Insurance Policies -Calculate and Customize

was inspired by a comment Sanjeev Bhatia made in one of Subra’s post. When he read my post, he had a couple of things to say which I would like to share with you.

First, here is Sanjeev's original comment: 

"The flexibility pure term plans offer in terms of switching, lower premiums due to competition kicking in or due to technological advances (online term plans instead of regular agent based insurance)cannot be matched by anything else. Further, as you (Subra) have rightly pointed out, if God has been kind to you, the Sum Assured that looks like ample right now might not amount to anything in your overall wealth portfolio at later stages of life. So it’s better to junk the plan totally and invest the amount somewhere else.

Another way you can still minimize the insurance expense is through laddering. It might not be known to many that contrary to endowment plans/Ulips etc, a term plan becomes costlier as the duration increases. For, say, a 35 year old male, premium for 40 year term plan will be more than a 30 year plan for same Sum Assured. What you can do here is to Stagger the plans as per your needs. In my case, for example, I have taken one term plan of 10 year duration to cover Kid’s education expense, one of 15 year duration to cover their marriages and one of 30 years to cover life expectancy. The total premium outgo is much lower than a single policy of 30 year duration. Now if I were to die today, the total SA will be available to my family. If it happens after 10 years, my kids education would have been completed by that time, and there will not be any need to cover those expense. So I don’t need to have that cover at that stage. Ditto for marriage. Of course, you need to keep a few things in mind to do so, the first and foremost being filling the insurance form yourself and providing details of your existing policies there".

 Sanjeev's thoughts after reading my post:

"I feel you must also emphasize the fact that Term Plan premiums are inverse of Regular endowment policies. Here, the longer the tenure, higher is the premium. So it does not make sense to pay the premium for that part of SA whose need has expired".

Here is the illustration he shared with me. This drives home the advantage of laddering better:

 

Ladder-2

 

Let me know if you like to see the weekend roundup posts more regularly. I will do my best to post them more often.

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12 thoughts on “Weekend Roundup – Jan. 26th 2014

  1. Ramesh

    The catch of course is the usual suspect - 'inflation'. It would have been very difficult for a father to predict his son would be earning 20 lks per annum 20 years down the line, when his own annual salary is 12,000 rs. So how much is good enough?

    Reply
    1. pattu

      True. All one can do it to make a reasonable inflation asumption of about 8-10% and go with it. This is an input in the ladder insurance calculator.

      Reply
  2. Ramesh

    The catch of course is the usual suspect - 'inflation'. It would have been very difficult for a father to predict his son would be earning 20 lks per annum 20 years down the line, when his own annual salary is 12,000 rs. So how much is good enough?

    Reply
    1. pattu

      True. All one can do it to make a reasonable inflation asumption of about 8-10% and go with it. This is an input in the ladder insurance calculator.

      Reply

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