Hornmerchant's BLOG

Recently, someone asked me a few questions about term life insurance in a specific situation. I’ve summarised our discussion below because many people have similar doubts, and the conversation highlights some useful general insights on how to think about life insurance. Questions I am a senior executive at an MNC, 58 years old, with an official retirement age of 65. I am purchasing an apartment worth ₹3 crore and taking a home loan of ₹2 crore, which the bank has approved with a 7-year tenure. The bank manager is insisting that I purchase a term life insurance policy linked to the home loan. My questions are: Is such home-loan-linked term insurance mandatory? Should I buy a term plan at this age, considering the high premium and the fact that my existing investments & assets are sufficient to cover the loan if something happens to me? Answers 1. Is home-loan-linked term insurance mandatory? Generally, it is not mandatory , and often not advisable to buy the bundled home-lo...

There are two types of self-serving Insurance intermediaries – Online Portals and Insurance “Salesmen”. Each of these are broadly of two types again. Two types of Online Portals are – Aggregators, earning referral fees and Brokers earning commissions. Online portals are too focused on conversions and quick sales than understanding the customer needs, educating the customer etc.; well online portals are not built for that kind of high-touch & personalized engagements. Then, two types of Salesmen are – Sales Staff of Banks or Sales Executives, earning incentives, lured by pay hikes/promotions and Individual Insurance agents earning commissions, lured by foreign trips etc. These salesmen too are too focused on achieving their personal sales numbers than what is best for the customers. A disclaimer to clear any smallest doubt – No, I don’t mean all of them are same; not all are bad. Then there are media houses, bloggers, vloggers, influencers earning th r ough ads or/and referral f...

Few days ago I’ve posted a short article titled “ Lifeand Health Insurance – The Right Way to Look At ” . You may also relate this to the post “ Use,Abuse and Misuse of  Life Insurance ” This one may be considered a continuation and slight detailing about Life Insurance, with extension to Personal Accident Insurance. With the above articles you know, you should buy Term Life Insurance. While buying the term insurance most policies offer riders. Riders are ‘Add-ons’ that can be bought along with base cover. Riders offered may differ one to other insurer and plan. Most common are ‘Accidental Death Benefit’, ‘Accidental Disability’ and ‘Critical Illness’. Before I elaborate on the riders, let me describe amount the optimum cover for base life cover. There are methods of calculating the exact amount of Life Cover you need – The Income Replacement Method and Human Life Value (HLV). These methods may be a bit complicated for layman. For simplicity, you may use thumb-rule met...

An argument I have to frequently counter about insurance is based on “Cost-Benefit” analysis. Well, no person would mention their argument to in that exact phrase but they mean that. That means they argue, compared to the claim (sum insured) amount I may get and the premium I am being charged for that is far lesser. So why should not I take that insurance / feature, though it costs slightly more. This argument is faced in situations like buying an add-on / rider with the main policy, buying for longer tenure / term, too much (features) for too less (price / premium). My advice is understand and anchor on to what you NEED. Consider the options available. For illustration, say, following for offer: P-1 [Primary Offer], a product (policy) that just satisfies your needs with reasonable pricing and there are competing products.  A-1 [First alternative / competing product]: charges slightly more and offers some add-on’s which are not needed / not so much useful to you.  ...

During my discussion about Term life Insurance, I am asked frequently, why not take it for very long term to cover the older ages also, say till age 75. It is obvious, why people think like that. And because most people think like that, it becomes opportunity for the Insurance Industry! Nowadays few companies have started offering term insurance policies that never expire…means life time (Age 100) cover!!! People think the probability of death is high during older ages than younger age and hence if they cover themselves during those ages, their nominees (children) will get benefited! It’s like passing on the inheritance / estate to next generation!! I would say this thought process is both misuse and abuse of Insurance. Insurance is appropriate neither for passing on wealth (misuse) nor getting insurance cover when you don’t need it (abuse). Firstly, an insurance (any kind of insurance) is always your B-Plan (Back-up Plan). There is a room for B-Plan only when you have A-Plan (Act...

Firstly, an insurance (any kind of insurance) is always your B-Plan (Back-up Plan). There is a room for B-Plan only when you have A-Plan (Actual / Primary Plan). B-Plan is for use when A-Plan for some reason doesn’t work or fails. So, obviously there can’t be B-Plan if there is no A-Plan in first place or if the A-Plan is successfully executed. Let me elaborate to tell what I mean. You have so many financial goals and responsibilities towards your family – Funding your Children’s  education & career, Getting your daughter married, Owning a house for your family, Ensuring post retirement income for spouse (& yourself) etc. The A-Plan to achieve these goals is work, earn and save & invest.  So, if you work for several long years or till your retirement, you are going to work / execute A-Plan. But, what if fate doesn’t allow that and some accident hits to leave you dead or disabled? Your future income will no more be available to the family. Then what about those...

There are already plenty of articles written on ULIP vs MF.  This an FAQ. This became further more VFAQ since Long Term Capital Gain (LTCG) Tax was (re)imposed on Equity Mutual Funds. This question started when Life Insurance policies became Investment vehicles more than Risk management instruments. But now Mutual Funds have started offering Life Insurance! This kind of ‘cross-border invasion’ has created all the more confusion. Then what is the purpose of this one more article about the same matter? What more or different I have to say about this Frequently Asked and Widely Answered Question? I wish to talk about the practical (relevant) and less discussed points. End of the day they are the most important. Well, however, for the relevance of the topic it may be inevitable to repeat some things you already know or what other hundreds of articles have already spoken about a lot. PERFORMANCE: Let’s begin with first things first. The Returns…Performance. This is at the top...