Start organizing your money …… NOW!!!!

We are all familiar with the words “Money Attracts Money.” Let me relate a small incident in reference to the statement. There was a small boy working with a businessperson. He once overhead a conversation where his boss mentioned the above statement. The boy was very excited. The day he got his salary, he chose a five hundred rupee note, slipped it into the boss’s locker and pulled it out. The same note came out. Nothing more, nothing less. He tried for the second time, but the same result. The third time he tried, his note was stuck into the locker. The boss meanwhile was observing this entire scene unknown to the boy. As soon as the boy knew, he had been caught, he was very apologetic, and explained that he was only checking out the statement and now realized that it did not hold true. To this, his boss explained that it indeed was true, because, BIG MONEY, PULLS SMALL MONEY. His (the boss’s) big money had attracted the small money into the locker. Therefore, the question now arises- how does one create this BIG MONEY.

People can be broadly classified into three categories:

• Those that EARN and SAVE
• Those that EARN and CONSUME ALL
• Those that EARN and TAKE ON LIABILITIES TO CONSUME MORE THAN THEY EARN

While the going is good, no one wants to visualize or worry about the future, or rather, one can say, one does not want to think that the good times will ever end. The third category of the people is the ones in the most dangerous situation. One feels, that lifestyles have improved, economy has improved, but is it really so? It is most probably, we are spending today, what we would have earned over a period of 10-20 years. We are earning and clearing liabilities. Moreover, liabilities are taken but no insurance to cover the liabilities. THE QUESTION ONE NEEDS TO ASK HERE IS NOT ‘Who will clear the liability IF you die or are permanently disabled?’ This is a very important question but a glaring one that should be corrected. The ‘IF’ in the question should be ‘WHEN’. The ‘IF’ is majorly used as an excuse, for putting off the commitment towards buying a life cover, towards saving. Procrastination becomes a habit. How does one then save, for the future? For retirement? For the big money?

Retirement being the period when there will be no EARNINGS, but 365 days and many more of EXPENSES. Has one made a conscious effort to save for this golden period? Only money saved today and invested will grow and attract more money that can be used for this golden period of life. In fact, life insurance policies are sold, more for retirement provision than life insurance cover. Not that they provide one with inflation-adjusted returns, but they ensure that one is committed to saving a fixed amount every year to reach the target. No other instrument ensures compulsory saving. Surveys reveal that no one has ever consciously saved in a bank for 20 years at a continuous stretch!

Contradictory it may sound, but life insurance and retirement planning go hand in hand. The best thing to save for RETIREMENT is SELF RESPECT and the best way to SAVE is through LIFE INSURANCE. Investment planning is the tool that enables one to achieve one’s various financial goals including retirement. With each passing day, personal finances grow more complex, and with each passing day, an individual has less time to develop a personal financial plan. Therefore, the only way to do is to allow a Certified Financial Planner to handle it. It is only

While those of you who are wondering what does F.D have to do with life insurance…Beware…you could be a victim of it.

As it happened with Mr. Mangesh Pai who went to the largest private sector bank to rollover his F.D maturity into another F.D; he landed up rolling over his maturity amount into a life insurance policy instead. He was told by a bank officer that this would be like a F.D with life insurance cover and 10% interest minimum. Mr. Mangesh found it attractive and signed the papers.

Being a busy heart surgeon, he didn’t get time to go through the papers he got after few days until to his surprise he got notice from insurance company intimating payment for renewal premium after a year. He started wondering “when did he buy this company’s insurance policy, that too with such a huge premium?” (his F.D maturity was huge). While digging through all his financial papers in his file, he found that he was cheated and been sold a life insurance policy instead of F.D which he wanted. Moreover the policy has annual premium paying term of 20 years. He further found out that it was a ULIP with 35% charges and very low life cover. He has filed complaint with RBI and is fighting against the bank.

With thirst of earning huge commissions, bank hire people mostly young who have inadequate knowledge and experience on insurance. These people with tag of “Financial Advisor” or “Relationship Officer” are given targets and incentives. On the verge of achieving those targets and earning incentives, they tend to mis-sell in a big way. Same is the case with “Relationship Managers” of most broking firms. They are trained for aggressive sales and thus have only one thing in mind…sell insurance to anyone anyhow and achieve targets. The ultimate losers? Consumers. Beware…

In another case, Mrs. Priya Arora got call from a MNC bank where she holds a credit card. Despite showing no interest in an insurance product being pitched to her, she found insurance premium being debited in her credit card bill. Mr. Ahmed who went to a public sector bank for opening a savings a/c was asked to take an insurance policy. “You need to take this product along with a/c opening,” said an officer at the bank.

While the advent of private life insurance companies have definitely increased insurance penetration in India which is still very low, it has also definitely increased mis-selling of insurance products. With increasing number of insurance companies so are increasing number is insurance agents. Companies are hiring agents very aggressively to boost sales as a result of which you will find many college students, housewives, doctors, teachers, and people with part time jobs as insurance agents who sells insurance part time merely to earn some extra buck. These people lack knowledge, skills and experience; result of which – wrong product being sold or mis-selling. Insurance agents merely push the product which is earning them higher commission irrespective of weather such product meets your needs and requirements or not. As is happened with Mr. Kamlesh the only earning member in the family who ended up paying 70000 p.a merely for 5 lakh of insurance cover, most of them are ULIPs with high charges. Being bread earner of the family he should have been given much higher life insurance coverage at a lower premium.

Most of the agents typically are trained on only two or three ULIP products and they sell only those products. If you ask such agents about an endowment or term plans most of them don’t know much about it and they will try to convince you that this or that ULIP product is better, that it has given 30% returns in last 5 years.

It is recommendable to avoid buying insurance from part time agents primarily because you may be victim of the wrong product which may not meet your needs, you would suffer from bad service from the agent and secondarily this is their part time work, they would be out of it anytime and then you would be all lost.

So shouldn’t we buy insurance at all? If we have to, where do we get it from?

While life insurance cover is one of the most important things to have for an earning member of the family, we need to determine goals, requirements and how much insurance do we need. Typically, when we think of buying insurance we ourselves don’t know how much cover we should take. Most of us decide it on the premium. We opt of whatever Insurance cover we get on lower premium. Some of us just opt for whatever cover the agent says. Most of us land up being underinsured. You need to look upon various aspects such as cost of living, expected cost of living, your income and increase in your earnings, your dependents etc. before taking a cover.

“It’s a complex process, I don’t have time, skills, and expertise to access all these factors and determine my insurance need!”

You need not - hire a Certified Financial Planner (CFP). The role of a qualified Financial Planner is to look at all aspects of your lifestyle, goals, and requirements and develop a financial strategy suitable for you. The recommended strategy should help you reach your goals effectively and efficiently. Insurance Planning is a part of it in which they would recommend you how much insurance you should have and what mix of products you should opt for viz. term plans, ULIPs etc which would make you financially secure and help you meet your requirements and goals. Once you have a plan designed by a CFP, you can buy various kind of insurance products as recommended by him/her. This will help you getting what you actually need and not what actually an insurance agent needs.

Do not fall in pit of aggressive insurance agents or bank officers who may sell you a ULIP with high charges and low cover. It would be very difficult for you to get out of it!!

Get a strategy and plan developed by a CFP and be financially secure.

Happy Financial Freedom!