Innovative changes in Insurance policies

When you buy a life insurance policy, you protect your dependents from financial losses that may arise in case of any untoward event. But apart from loss of life there are a number of events against which you buy protection cover. For instance, with growing awareness about medical insurance, we buy health insurance policies. Similarly, if you own a car you tend to buy comprehensive car insurance which goes beyond safeguarding you against just third party loss. As more and more people are buying non-life products, insurance companies are keen on introducing some innovative changes and added features to non-life policies in 2014.

Every company offers some unique features over and above those offered in the basic plans, at present. However, with changing dynamics of business, innovations and added features are going to gain importance in 2014.

What may change now?
When it comes to health insurance, very few companies are going beyond providing health cover currently. It is expected that, companies will start providing added services such letting policyholders avail discounts on purchases of medicines and on gym as well as spa memberships. For this purpose they might tie up with pharmacists, gyms and health clubs.

You may soon start getting extended covers on consumer durables. At present, typically, one may opt for extension of warranty upto 12 months. It is expected that insurance companies may allow you to extend these warranties by up to 24 months. Such a move is expected to protect policy holders from losses suffered on account of manufacturing defects which may arise at later stage. Such cases are on rise especially in case of smartphones.

Your comprehensive car insurance policy may get even better with added features and riders that may be introduced this year. Under current system, value of claim is settled as per the depreciated value of the car. So someone owning an older car would have to settle for negligible amount as the depreciated value would be far lesser than the actual cost of the car. But the concept of “return-to-invoice” is likely to gain acceptance in 2014. Opting for this rider (name may differ from company to company) would help you cover the gap between the insured value of the car and its invoice value (i.e. value of a new car). So in case of a total damage, entire amount originally paid by the policyholder (for car) would become the settlement amount. Insurers are also planning to establish tie-ups with petrol pumps and service stations to let policyholders avail their services in case of emergencies such as fuel supply and repairs. Moreover, use of telematics may also gain momentum in 2014. This requires fitting a device in the car of the policyholder for tracking his driving behaviour. Good driving behaviour may help him avail discounts in the premium in the long term.

Direct Equity or Equity Funds

There are several benefits of investing through mutual funds instead of directly investing in stocks. Mutual funds combine the savings of a large number of investors and manage it as a single pool of money. So, instead of investors worrying about which stock or bond to invest in, professional fund managers do the job.

Equities are complex and stocks you can buy come in a bewildering array of sectors, industries, size, financial structure, promoter track record, competitive scenarios and a lot more. When you invest in a fund from a good fund house, there is a full-fledged research department to keep tabs on all this; and there’s an experienced full-time fund manager who has years –often decades — of track record of making equity investments. Moreover, his track record is publicly known and thoroughly analysed by researchers.

Compared to directly picking stocks, mutual funds are a more suitable route for a lot of people. It simply takes less effort, less time, less experience and less specialised knowledge to get good returns from equity mutual funds than it does from directly trading in equities.

Diversification — the most crucial aspect of investing — is much easier to practice for a fund investor. This is true of all kinds of diversification, including sectoral and of asset type. Many fixed income asset types like bonds are simply not available to individual investors.

Besides time, money and diversification, there are other advantages too. Generally, mutual funds are more tax efficient. They are certainly a lot more convenient. Extremely beneficial methods like systematic investing (SIPs) are very hard to implement for equities but simple for funds.

There’s a more complicated psychological problem with directly picking stocks. Basically, what we’ve said here is that if you are skilled enough, then you can do it. However, equity investors are by nature optimistic and that makes them overestimate their own skills. That’s often an expensive mistake.

Financial planning for Women

What is the first word that comes to your mind when you hear the words ‘financial planning’? For most men reading this article it could be pertaining to planning the finances for the welfare of his family and most women readers would think how their husbands or fathers are managing their monetary affairs. It is unfortunate that very few women consider learning about financial affairs and managing their own finances vital. However women face various risks which are subjective in nature. For most women, career takes a backseat when they enter motherhood or when the domestic needs of her household are more pressing. While it is important to work towards your other priorities in life, planning for them from an early age can help you achieve goals and also save for contingencies.

Today, quite a few women live their retired lives alone. This is mainly because of longer life spans of women and increasing divorce cases. Hence women might have to handle their financial situation alone at some point of their lives. Although women today have started sharing the financial responsibilities of the household and have become financially independent, they are not yet financially secured. A recent survey conducted by Nielson across a few cities in India showed that only about 23% of the working women take their own financial decisions about where and how to invest, as published in a leading newspaper. It is unfortunate that despite of being financially independent, many women in India feel less confident or are not permitted to take their own financial decisions by their families.

A financial plan can empower you to accomplish what you have dreamt of achieving by charting a road map to attain all your financial goals. Women have unique financial requirements. Apart from achieving all your financial goals (such as marriage expenses, planning for retirement, etc.) you also need to be well equipped to deal with all the aforesaid contingencies. With the rising cost of living and medical expenses, you must undertake financial planning from an early age in order to avoid being helpless later.

Constructing a viable financial plan can be made easier by adopting the following steps:

  • Define your Objectives: Unless you know where you are headed you won’t get there. So, the most important thing to do while you sit down to plan your finances is ask yourself why you want to plan. Even if your husband takes care of all the household expenses you might want to financially contribute towards your children’s education or towards working for your own retirement. You might also have other financial objectives such as saving for your parent’s old age or buying a house or a car. Hence it is important for all women (whether married, single or divorced) to determine and prioritise their financial objectives.
  • Calculating Investment Amounts: Depending upon what your short and long-term goals are, find out the cost of achieving them. This would probably be much higher in the future than what their worth is today, mainly due to the impact of inflation. Then you must work out the amount you need to save and invest per month so that you can achieve these goals. Do not forget, financial planning is incomplete without an appropriate insurance cover. With increasing age the problems that women face also increases. Hence without an adequate health and life cover, you are not only endangering your own life but also the well-being of those who are financially dependent on you (such as parents, children etc.). You can take the help of several online tools such as retirement calculator, HLV calculator, etc. to determine the amount that you will need for meeting various financial requirements (such as retirement corpus, insurance cover etc.). Such a goal based planning will help you to get a clear picture of how a systematic approach can help you to achieve your financial goals.
  • Saving: Once you have determined how much you need to save per month to meet all your goals, you need to start acting upon it. However, in case you feel that you are not able to save as much as you had planned, then have a look at your monthly budgets. Reduce your household and personal expenses such as electricity bills, fuel costs or recreational expenses etc. If the gap is yet large than it would be prudent to find an additional source of income along with your on-going job. If it still seems impossible to save that much than you must consider revising your goal realisation date or altering your objectives. For example, if you were planning to retire at 60, consider retiring at 65 instead, giving yourself more earning years. Or consider reducing the goal corpus that is required. For instance, if you wanted to buy a house for 75 lakhs, consider a house for 60 lakhs instead. Only having realistic goals will lead you to achieving them.
  • Preparing an Investment Plan: Saving your money alone cannot help you achieve your goals as the inflation bug eats into your hard-earned money every single day. Hence even if you save the appropriate amount every month and keep it in a locker, it will not be adequate by the time you actually need the money. To fight inflation and to make your savings grow you need to start investing. Depending upon your risk appetite and risk tolerance level, you must determine your investment avenues. It is also prudent to diversify your investments across different asset classes (equity, debt, gold etc.) and imbibe an appropriate asset allocation plan. While equity instruments can give the required boost to your investment value, debt and money market instruments will protect the portfolio value from getting eroded during uncertain market conditions.
  • Executing the Plan: Procrastination or delaying this process will cost you dearly. The earlier you start saving and investing the lesser will be your monthly instalments. In this step, all the investments and insurance options that you have outlined in your investment plan have to be brought into action. This process involves filling in all the investment and insurance application forms with accurate information. Giving inaccurate information on these forms could lead to the rejection of your application or insurance claim at a later date. Remember, financial planning also involves planning for your estate. Estate planning ensures that your assets, both physical and financial, are inherited by the people to whom you want them to be transferred to when you are gone. Hence it is important to appoint a nominee across all your investments, bank accounts and insurance products so that everything is passed on to your choice of beneficiaries.
  • Reviewing the Plan: To ensure that you remain on course it is important to review your financial plan atleast once in a year till the time you achieve all your financial goals. This will enable you to incorporate any economic or personal changes in your plan to achieve your goals as intended. You also need to adjust your asset allocation from time to time to avoid market turbulence and safe guard your portfolio value. For instance, you might have a large exposure to risky assets (such as equities) while you far away from realising your goals, but as your goals draw nearer you must consider shifting majority of your portfolio to safe instruments (such as fixed income products) to shield the value of the portfolio from getting eroded. Remember, without a timely review of your financial plan, you are most probably bidding a goodbye to your financial goals.
  • Redemption: As the event you have been investing for, is upon you, you need to redeem your investments. With a mutual fund investment this involves signing on the redemption slip. In case of a life or health insurance policy, it involves submitting the policy and other relevant documents to the insurer and following up for the maturity proceeds. You also need to understand and plan for the taxation issues involved with the redemption of your investments.