There is good news for those loan borrowers who didn’t opt for the loan moratorium benefit which was introduced by govt due to the pandemic. The govt has decided to pay the interest on the interest of the loan outstanding and pass on the benefit in form of cashback to loan borrowers.
Let me explain
So those borrowers who have opted for loan moratorium benefit will only be paying the simple interest on the loan outstanding and not the interest on the interest. This means that all those who paid their EMI’s are in a way getting penalized for not taking the benefit. Hence govt has with this benefit where all those loan takers who have paid their EMI’s on time will also be just paying the interest on their loan outstanding and not the compound interest for the period of 6 months (from Mar 1 to 31st Aug 2020)
Note that the interest applicable for calculation purpose will be as on 29/02/2020.
However because the EMI payments have already been made, the govt will pay back the difference to your bank account in form of a cashback in a few days. Let me summarize it
What you have to pay : Only the simple interest on the loan outstanding as of 29th Feb, 2020
What you paid : Compound Interest on the loan outstanding as of 29th Feb, 2020
What you will get back : Difference between Compound and Simple Interest for 6 months
Example Calculation
Here is a sample calculation for a loan outstanding of Rs 50 lacs (as of Feb 29,2020) with an interest rate of @9%
So you will get back this amount in form of cashback
This benefit is available on
Housing Loans
Automobiles Loans
Credit Card Debt
Education Loans
Consumer Durable Loans
MSME Loans
Other Eligibility Criteria to get this benefit
The Loan Outstanding should be up to Rs 2 crore
The Loans should not be NPA as on 29/2/2020
This benefit will also be passed to someone whose loan is closed during the moratorium period. Do let me know if you have any questions on this and I will be able to answer that.
Do you have a daughter? Saving in gold for her marriage?
Nice! .. Nothing wrong with it.
Just that I wanted to tell you what your daughter wants?!
Yes, that’s exactly what we did. We ran a survey with around 1,996 people which was a mix of men and women and tried to get a perspective of how women (and men also) see the gold which is given in our Indian marriages.
Check out this 20 min video below where I have shared the results of the survey in detail and also gave my commentary.
Indian marriages are not complete without GOLD.
Every parent tries to give enough gold to their daughters in form of jewelry which is worn by the bride in marriage and it also kind of becomes a scorecard for others to compete. But do daughters really want gold from parents to that extent?
Here is what females replied to our question when we asked them “What is the main reason why you want GOLD for your wedding?”
Check our more survey results in our video above..
There is enough for me to talk on this on this topic, but I would save that for another day and rather point you to this excellent article which talks about GOLD, Dowry and what women have to go through in our country
My parents, however, decided to give me — a person who does not wear any jewelry, not even a wedding ring — a pound or two of gold jewelry. A matter of pride.
“Your father is a doctor and mother is a professor; people will expect you to wear some gold,” an aunt explained.
“What you do today will reflect on your sister and will affect her wedding,” another aunt said.
Weddings are hard, and I had no fight left in me. So I went along with it. I wore an armor of gold. The numerous chains were stitched onto my sari to keep them in place. I never saw that jewelry again after the wedding. My mother-in-law has it safe in a bank locker somewhere.
One of the first conversations I had with my mother-in-law was when she told me that her son had certain responsibilities to his sister. She then asked me to not stop him from fulfilling those.
Years later, I decoded that cryptic message.
She was trying to tell me that when the time came, I should support my husband in paying his sister’s dowry.
But I don’t think I can support a system that turns women into bargaining chips.
I would really love to get your comments and opinion about this topic. Please share that in the comments section.
Disclaimer: The survey results don’t claim to showcase what the whole of India thinks. The survey was taken by only 1,996 people and its not a very big same size as such, however it’s not very small though.
Congrats! – Health Insurance just got a lot better
IRDA has recently come up with some major changes in health insurance guidelines which are extremely customer friendly. These changes will reduce a lot of confusion that customers used to face while buying health insurance and will also help in smooth claim experience.
These changes are really good and it’s suggested that you should be aware of all the changes if you have a health insurance policy. It will take some time to understand these changes, but please read this article fully.
In case you like to listen, rather than read – here is a 35 min video discussion I did with Mahavir Chopra of Beshak.org who is an expert on this subject and a good friend too. While there are many big and small changes in the guidelines, the video talks about the top 10 changes which matters to you.
Change #1 – Standard definition of 18 exclusion
There are various exclusions in a health insurance policy and wordings for them differ from policy to policy. This confuses the policyholders while their decision-making process. Now IRDA has standardized the definitions and wordings for all kind of exclusions
One of the examples of this is the wordings for a pre-existing illness, 30 day waiting period, maternity, obesity, and many more. In various policies, the definition is different for these terms and it leaves a grey area many times.
Now with the new rule, every policy will have the same wordings and definition of the exclusions along with a CODE for each exclusion.
Change #2 – No ambiguous wordings or definitions
Apart from this, IRDA has also said that there should not be any ambiguity in the wordings which can create confusion in the future. For example – “Obesity is not covered, and any other illness which is derived out of obesity is also not covered”.
If you look at the example above, how will an insurer and the policy come to an agreement is something was because of obesity or not? There may be a disagreement in the future and companies can deny the claim citing some unreasonable thing.
Now, this practice ends…
Change #3 – Many Exclusions are disallowed
Now many exclusions which were part of policies earlier are disallowed, which means that companies will have to cover them. Some of the examples are as follows.
Treatment of mental illness
Behavioral and Neurodevelopmental Disorders
Genetic diseases or disorders
Puberty and Menopause Related Disorders
Injury or illness associated with hazardous activities
So the coverage of the health insurance policy widens now and you will be able to get coverage for many more things. This is wonderful news because mental illness or psychological related hospitalization will now get covered which was a big requirement.
Check out our youtube video on these 10 changes if you want to listen to the whole conversation
Check out this video
Change #4 – The definition of “Pre-existing” diseases is standardized
This is one area that was quite confusing for customers.
Till now, it was not very clear what exactly is a pre-existing illness? So the onus was completely on the customer to remember his symptoms and go back in past to dig out all that had happened. If he had forgotten anything and it came up later in the future which was not disclosed in the policy, there was a good chance of rejection of claims.
Now, the IRDA has made it clear that a pre-existing illness is an illness for which,
A doctor has advised you a treatment
Or Doctor has diagnosed a disease
Only in these two cases, it will be treated as a pre-existing illness, else not. Hence, it has now become a much-focused definition now which will remove all the confusion.
So now just because you have some mild symptoms or an indication of an illness, does not automatically become a pre-existing illness going forward.
Another example is let’s say you are obese and have had bad eating habits and you are not sure if you are diabetic or not… In this case, a lot of people wonder if the insurer can reject the claims in the future because of hospitalization due to diabetes.. but with new rules, unless it was diagnosed by the doctor officially, it will not be treated just a pre-existing illness.
Change #5 – No claim rejection after 8 yrs. of premium payment
This is a big relief to policyholders.
Now health insurance companies will have to settle all the claims once a policy has been active for continuous 8 yrs. In case you increase your sum assured in the same policy, another 8 yrs. of moratorium period will be applicable on the increased limit. Apart from this, the permanent exclusions will always be excluded.
Only in case of a Proven fraud, the rejection can happen after 8 yrs. However, in case of a genuine claim, the policyholder doesn’t need to worry. Check out the reply by Mahavir Chopra on twitter timeline to one of the people who asked a question on what is a fraud and what is not.
Change #6 – People with serious illnesses to get cover with permanent exclusions
A lot of people who had some serious illnesses like cancer, epilepsy, Chronic Kidney disease, Alzheimer’s Disease were denied any kind of health insurance. They were not even provided cover for other things with these things put as permanent exclusions.
However, this has changed now.
IRDA has said that now people with these kinds of illnesses also have a right for getting health insurance for at least other illnesses. So health insurance companies will now have to give them health insurance for at least the other diseases with their pre-existing illnesses as permanent exclusions.
This is important because if someone had Chronic Kidney disease, they can still be hospitalized due to a completely different illness like a brain illness, mental illness, accident, or cancer .. You can’t just completely reject them and deprive them of health insurance.
This clause is not applicable to lifestyle diseases like diabetes, hypertension, etc. because insurers can’t put permanent exclusions on these things as they have almost become part of our life these days, and people like their whole life with these things. More on this in the next points.
Change #7 – Modern treatments to be covered in health insurance
Another welcoming change is that some advanced and modern treatments will now be compulsorily covered in health insurance policies. Here is a full list of modern treatments which IRDA has specified
Uterine Artery Embolization and HIFU
Balloon Sinuplast
Deep Brain stimulation
Oral chemotherapy
Immunotherapy- Monoclonal Antibody to be given as an injection
Intra vitreal injections
Robotic surgeries
Stereotactic radio surgeries
Bronchial Thermoplasty
Vaporisation of the prostrate (Green laser treatment or holmium laser treatment)
IONM – (Intra Operative Neuro Monitoring)
Stem cell therapy
A lot of times, these advanced treatments are advised by doctors but these were never covered by health insurance policies. However, with this, you get access to more advanced treatments going forward.
Change #8 – Waiting period for specified illnesses can’t be more than 4 yrs.
So earlier there was clarity on how much can be the waiting period for various illnesses like cataract, knee surgery, and many other kinds of illnesses. Most of the time it was in the range of 2-4 yrs. and some older policies may have higher than 4 yrs of waiting period.
But IRDA has now made it clear that in no case, it can be more than 4 yrs. of waiting period.
Change #9 – Waiting period for lifestyle diseases only up to 90 days
So the waiting period for lifestyle illnesses like diabetes, hypertension, and Cardiac conditions can be only up to 90 days and not beyond that. Till now the insurer used to keep waiting period for these lifestyle diseases up to 2-4 yrs. Nowadays these illnesses are very common and have become part of life in a way.
This is good from the customer’s point of view.
However, note that the waiting period of 90 days is only in case you don’t have these at the time of taking the policy. In case you already have them, then it’s classified as “pre-existing illness” in your case.
Also note that if you have recently taken a health insurance policy, then at the time of next renewal this 90 days waiting period will apply in your case and will get covered for you.
Change #10 – Pre and Post hospitalization expenses to be covered for domiciliary hospitalization
Another change is that now in case of domiciliary hospitalization (when you do the treatment at home because of unavailability of hospital beds) the pre and post-hospitalization expenses will also be covered which was not the case earlier.
When something improves by a big margin, it’s almost guaranteed that its price will also rise in the same fashion. The same is the case here. Because of all these new changes, the health insurance policies have got more superior and much better & provides more value now.
So you can surely expect that the premiums will rise in the future for these policies
If you already have the health insurance policy, you can expect the premiums to rise on your next renewal. However, you should take it positively and not feel bad about it.
These changes have happened for your benefit and it’s you who will benefit from it in the future. Health Insurance companies are also bound to incorporate these changes as an order from IRDA.
What is your view about these changes? Do you feel it will help customers?
That’s what most of the investors answer when they are asked – “How long are you going to live?”
Truly speaking, no one knows how long will you live!. We may die at 60, 70,80, and 90,100 or may be 47 or next week!. Who knows?
In most of our workshops and even the online webinars, when we asking this question “How long should you plan your retirement?” . The standard reply is 75-80 yrs. Only 2-3 people among the ground of 40 will murmur a number like 95 yrs. or something like that and obviously face the horror from of those who are confident of not retiring with enough corpus.
Today, we are trying to answer this question from retirement planning perspective. When you plan for your retirement corpus, it depends heavily on how long you are going to live!. If you live for a short period, you need less wealth. If you are going to live for a very very long time, you are going to need a very large corpus.
Your answer to “How long will you live after retirement?” will also vary depending on how happy are you with life overall currently. If you are stuck in your job, where you feel frustrated and also have not been able to reach some milestones in life, your answer will show the pessimism and you might say “75 yrs” is enough for me”
However if you are full of life, very happy right now, in a great health and have been doing great in your financial life, you might say “I would love to live till 90 or 95, Life is so beautiful”
But, Most investors get it wrong
Coming to the main question we are trying to answer today, we want to investigate or rather get enough clues on how long we can expect to live in retirement. Finding a good enough answer is critical for every one of us, because then we can design our life, priorities and investment plan for retirement based on the answer we get today.
I want to convince you today, that if you feel that you will just live till 75-80 yrs. only, then maybe you need to change the way you look at it. May be you are planning is wrong. May be you are taking the best case.
The biggest retirement worry most of the people (who are already retired) is “Outliving their money”. Just think of a situation where a person has planned for just 20 yrs. of retirement (retired at 60 and expects to die at 80), but he has already reached 78 yrs. of age and his money is almost finished.
What kind of mental trauma he/she has to go through?
We all want to make sure that it does not happen to us.
We all want to make sure that in our retirement life, we have enough money, freedom to withdraw enough money for our expenses and have a decent margin in case anything goes wrong, so that you don’t have to depend too much financially on others.
Recently we did retirement planning for a 54 yr old person who was an NRI reader and while we created his plan, we made sure that all these elements like legacy, tax optimization, risk-control and growth was taken care while creating his retirement plan and his action strategy. You also have to make sure that if you are almost going to retire or if your parents are about to retire (or already retired) these elements are present in their retirement portfolio.
While we are happy today that India is the youngest country in the world, we also have to remember that in few decades, all we young people will also retire. Many of us may also not have the privilege to live with our children which many senior citizens enjoy. So we need to plan better.
Life Expectancy in India
Let’s start with the basic question – “What is the average life expectancy in India right now in 2020?”
The official answer is around 69.73 in India at birth. For simplicity sake we will take life expectancy as 70 yrs. The life expectancy in India is continuously increasing every year from last many decades (a lot of people have this myth that it’s decreasing)
It simply means that one an average when a child takes birth, He/She is expected to live up to 70 yrs. of age. However we all know someone who died at 85, or 95 and even 53 or 29.
So this 70 yrs. is “Average” – which includes
All the young people who die because of accidents
All small children dying of malnutrition
All people who die of suicide
All people who die of any illness at young age
Old age people who die because of illness in age band of 60-70 yrs.
Old age people who due because of illness in age bank of 70-80 yrs.
Old age people who die of depression and loneliness
Old age people who die because of no access of good health care
Very old age people who die at age 90+ yrs.
So, you now understand that “average” is kind of a fraud number. It gives some idea to you about something, but does not reveal enough to take decision. We also have to look at standard deviation to get a better sense. And people age at death can vary by a big margin.
A big population dies below life expectancy of 70 yrs. and many die above 70 yrs. The average is 70 yrs. Which means that for every person who dies much before 70 yrs. , there is another person who is living till 100 to average it out
You can’t take these 70 yrs. as the base to plan your retirement life.
Moving Life Expectancy in India
A better data to look at is moving life expectancy number, which gives you an idea of what is the expected life expectancy once a person has reached an age. A person who has already reached 60 yrs. of age, won’t have the life expectancy of 70 yrs., it will be much more than that.
And here are the official numbers
So to conclude, a person who reached 60 yrs. of age as per above data can expect to live till 77-78 yrs. (another 17-18 yrs.) and this again is the average. This includes an unhealthy, broke retired person and a healthy, happy and wealthy retired person also. One of them will mostly die before 77 and another one will live longer than that.
You probably will belong to the other side and you know where this whole conversation is going.
Women live longer than Men
Let’s change the track a bit. I want to now talk a bit about Men and Women life expectancy.
Another thing you should know is that women in general live longer than men all over the world. In India also its true, and its truer for couples. You will often see men dying before their wives for simple reason that men generally have higher age compared to women, and men are exposed to more risks like accidents etc. because men mostly drive, get involved into those tasks which often have danger of life.
There are many other evolutionary and behavioural reasons, but it’s out of scope of this article.
So if you are women reading this, you need to understand that you will live much longer and have to plan for your pension. If you are men, you need to understand that while you may not believe that you will live longer, it’s your spouse who will outlive you and you have to do your planning more carefully for her as she may live for another 5-10 yrs. after you on average.
The following memes can give you a small hint (in a funny way) of what we are talking about.
Medical Advancements will contribute to your longer life
Decades ago, people died because of illnesses and diseases/inflections which look very normal today. The medicine and vaccines are available today which were not available few years/decades back (in future people will also talk like this for coronavirus).
Then over time various discoveries and inventions were done in the field of medical science and medicines, vaccines and treatments were available for masses at lower costs. This makes sure that the mortality rate comes down over time.
Check out how the mortality rate for Cancer is coming down (not the number of deaths, but the mortality rate)
Even the other types of mortality rates are coming down from last many years.
If we talk about the current Covid-19 related deaths they are mostly because we have no cure or vaccine available. But very soon, we will have some cure available which will make sure that not too many people die in future because of this virus.
The point I am trying to make is that the whole world is on the mission to make sure that there is further medical advancements and they are constantly trying to find ways to make sure that people live longer and longer.
If you have money with you, it will get tougher and tougher for you to die as no one will let you die easily. Neither your family members nor the hospitals that benefit out of treating you.
India is developing faster
Another angle to the same conversation is that our country is making progress every year and we are on our journey towards becoming a developed nation. India in 2040-50 (When I will be retired) be a different place than today (like its different than 1990)
As a nation develops we have better access to everything. We have more money, we have better healthcare system, we have better roads and infrastructure (imagine less accidents and all the people who didn’t meet accident also adding to the pool of retired people).
If you compare yourself to your parents, you will agree that you have much better access to better housing, quality food (ok this is controversial), quality entertainment, quality travel, quality healthcare, quality roads and infrastructure. They might not have been able to afford a good hospital, but you can!.
All these together contribute to a higher life expectancy. Check out this world map where the developed nations has higher life expectancy
Share of old age people in overall population
If you currently have a look at the share of aged population in developed countries, you will see that it’s very high in developed nations compared to developing or poor nations. For example, Japan has 26% of people who are senior citizen and Italy has 22.4% .. India will reach to that point in next 30-40 yrs.
In Japan, there is a village called Ogimi, where people generally live up to an age of 100 yrs. I am just showing a glimpse of what can happen with a developed country
Here is the data, I found in this report about share of senior citizens in overall population for developed countries. Check below
In India, currently the senior citizen population share is around 8-9%, which is expected to rise to 20% of population, which will be quite huge. This might be a disaster unless we all are prepared for with sufficient retirement corpus. Here is what Google tells me about the future
So if you are 30-40 yrs. old person reading this article, you need to be clear on this that once you get older, you will have much higher chances of living longer compared to our parents or much older generation. It’s a different thing that you live long in reality or not. But you have to plan thinking of the longest you can live, not the “average age”
I would like to conclude and sum up this article now with some points. Here they are
You may live for a very long time. It can be 90-100 yrs. and even 105 for some cases. Do plan better
Life Expectancy is increasing and it will keep increasing in future too.
Don’t assume or plan that you will be living only till 75-80 yrs. It’s not even happening now, forget about future
Plan for a big retirement corpus, so that it can last for your lifetime and also leave some legacy for your family.
Please share in comments section, what you feel about this article and whats your views about retirement phase and how long people will live in future?
Today we will discuss an interesting topic – How many times of your annual expenses do you need as your retirement corpus to retire comfortably?
For example, if someone has an annual expenses of Rs 6 lacs per year, then can they retire with Rs. 1.8 crores (30 times)? This is the focus of the article today!
The current state of “Retirement” Advertisements
From last 4-5 yrs, I can see a lot of conversations, articles and YouTube videos which talk about retirement and its importance.
There are many retirement plans and pension plans also launched these days which talk about importance of retiring with enough money and a secured way of generating pension once you stop working.
There is no doubt that retirement is top most financial goal (and the longest one) for any investor. We all will probably have a much longer retirement life than we imagine today. Our parents also have retired just few years back (or going to retire soon).
A 60 yrs old person can expect to live anywhere up to 85 – 105 yrs in future. With changing life style, less dependence of kids, increasing expenses at retirement – planning for retirement has become much more important than any time in history.
The problem is that we don’t know when we will die. You CANT plan for just 20 yrs of retirement, because what if you die at 100 yrs? It’s quite a tough thing to predict when you will die, and almost impossible to plan for it.
Hence the best you can do is take the worst case, and plan for a very long retirement.
Retirement Planning is very tough
First thing you should know is, that there are many variables when it comes to retirement. There are things like
Inflation
Returns
Taxation
When will you die
When will you retire
When you do any retirement calculations, you make some assumptions and you get an answer.
One big problem is that in reality there can be a lot of changes in these numbers, and your planning can go for a toss. Hence you need to look at things realistically and plan in such a way that takes care of worst scenarios.
Next 40 yrs cash flow
So let me start with asking how your expenses will look into future? If someone wants to retire today, how will their next 30-40 yrs of cashflow may look like.
Assuming that you want to retire at some point of time and your annual expenses at retirement is 1 unit. Then how this will change over time?
Can you see how drastic the expenses can vary in your retirement life due to various inflation rates? Note that in reality, the expenses might come down a bit once you are old enough like 80-90 yrs, but I have still not considered it because there can be other types of expenses like medical costs which will shoot up.
Is 30x corpus enough for retirement?
Now let’s dive deeper into the main question and focus on this article – “Is a corpus of 30 times yearly expenses enough to lead a long retired life?”
The short answer is YES, but before I go deeper into the answer – let me show you a case study
Imagine a person retires with following numbers
Per month expenses in the start of retirement = Rs 12 lacs (1 lac per month)
Corpus = 3.6 Cr (30x)
Inflation Assumed = 7%
Post Tax Returns = 9%
How long will the retirement corpus last in this case?
The answer is 43 yrs as per excel calculations. For simplicity purpose, for now we have taken a case where inflation, returns are all fixed and the person only needs the monthly expenses as per increasing inflation and no other withdrawals are done till end. In which case, the corpus change will be very smooth.
Here is how it looks like
What if your assumptions are wrong by 10% margin?
Most of the calculators just give you an answer like above graph, but does not ask a question – “What if things go wrong?”
What is the inflation is more than what you assumed?
What if you needed more income in future than you planned?
What if you were not able to generate the returns you assumed?
What if you had less corpus than you originally planned?
How different will be the result now if you are wrong by 10% margin on all 4 variables?
So, lets see that case too.
Corpus is 10% less = 3.24 cr (instead of 3.6 cr)
Monthly Expenses are 10% more = 1.1 lacs per month (instead of 1 lacs)
Inflation is 10% higher than assumed = 7.7% (instead of 7%)
Returns are 10% lower than assumed = 8.1% (instead of 9%)
So instead of 43 yrs, how fast the corpus will finish now?
The answer now changes to 27 yrs
Yes, from 43 yrs .. it now changes to 27 yrs, which is 16 yrs earlier.
However in real life, either all 4 things can go wrong by some margin, or just 1 or 2 or 3 things may go wrong.. so there are various scenarios here..
Nothing goes wrong
One variable goes wrong
Two variable goes wrong
Three variables goes wrong
All four variables go wrong
This in total makes 16 different combination.. We have seen the best case (when nothing goes wrong) and worst case (when all 4 variables go wrong) ..
But when we see all 16 variables together .. it looks like below
Note that these calculations above are assuming an inflation of 7% and post-tax returns of 9%. If you take lower returns or higher inflation, then the results will be different ..
Testing the data for 250 iterations
I assumed that Inflation and Returns will come down slowly over long term as we move towards a more developed economy. We might reach to a 2-4% inflation (starting with 7% today) and 4-6% returns post tax (starting with 9% today). I added a variation in calculations and plotted 250 variations of the same chart and here is the results.
As you can see from above graph, the results can vary a lot depending on inflation and returns combination. On an average the corpus lasts for 41 yrs.
I also took 5000 iterations to see how long the money finishes and here is the plot.
What we observed was that 98% of the times the money lasted in range of 35 yrs to 47 yrs, which is a decent enough planning, but the assumption is that all our assumptions about inflation and returns hold true.
Investing in Fixed Deposits for Income Generation
A lot of investors are extremely conservative and don’t want to invest in anything other than bank fixed deposits. We know that bank fixed deposits are highly secure, but at the same time – they are extremely inefficient in taxation and also provide below inflation returns.
But let’s test that case as well.
Let’s assume that a person is putting all their money in fixed deposits only. In which case the returns can be taken as 4% post tax (30% tax deducted from 5.5% returns)
Below I have shown how long the retirement money will last when a person has 60x, 50x, 40x, 30x, 20x and 10x corpus. I have done 250 scenarios and plotted them to see how the corpus ends.
As you can see, when the returns are lower – you need much more than 30x corpus if you want to last it for a very long term.
With just 30x, it will last for just 22 -24 yrs. The frustration of seeing your money finishing while you are still don’t see your death coming your way might be very horrible experience.
So conclude, Yes 30x corpus is good enough to retire, but the assumption is that you will not be dipping into that corpus to withdraw any big amounts like for buying house, or for your kids’ education or any large medical emergencies.
Better to have those things separate than your 30x corpus.
What if my corpus is less than 30x?
It’s going to be an issue if you are retiring with less corpus like 20x or 10x or 15x. In which case, you will have to make sure that you also have some decent equity exposure to bump up your returns so that your corpus can last longer. We at Jagoinvestor are working on various strategies which can be used to make sure that the corpus last longer using an equity exposure and generating a regular stream of income for our clients.
Do let me know what your thoughts about this article are.
Also, if you are interested in the topic of retirement planning and want to listen to a casual but very detailed talk on this topic, do listen to my talk with P V Subramanyam where we have discussed various aspects about retirement
Disclaimer : Note that these calculations are highly complex at times and there are lots of things which contribute to the calculation. I don’t claim to have done things perfectly from statistical point of view. This article is only a basic calculation with some high level assumptions. Do talk to your financial advisor before creating your retirement strategy.
We all are in lockdown from last 70+ days & this is probably a once in a life event. The whole world is fighting coronavirus and some form of lockdown is there in every part of the world.
People are losing jobs, seeing salary cuts and we all are wondering how the future will be from here. I think that while in short term all these problems will happen, but once things get normal and life is back to same point, things will be back in action. But it will take some time.. It can take 1-2 yrs.
8 Learning’s from this Lockdown
While there is so much of negativity and bad news all around. I want to admit that this lockdown was an experience in itself. It tested our patience. It forced us to do things we didn’t like and also opened new ideas for us. We saw many new creative ways people do business and how even in this crisis, our Jugaad attitude worked well for many things.
The lockdown has also given us a good opportunity to reflect back on many things in our finances and life in general. I want to share some of the things in this post.
1. We need a higher Emergency Fund
One clear lesson from this pandemic is that we need much higher emergency fund. Before the pandemic, I have often said that 4-6 months of emergency fund is ok to have, but I feel that needs to be revised to 12 months now.
Keep a year worth of expenses in a combination of liquid mutual funds and Fixed deposit and earn a near-inflation return.
You may lose the job and not get it for 9 months
Your employer might not be able to pay you.
You might want to take a long break to take care of someone in family.
You may meet an accident followed by a long bed rest.
You might be shifting your industry and might be looking at new job
We may see another pandemic and things can close down again!
2. Count your blessings – we have enough to live a good life
It was shocking to see how millions of people especially migrant workers suffered so much after they were stuck in various cities. They had no food, no money, and no roof over their head. They walked hundreds and thousands of KM on foot with small kids with them. We can’t ever understand how it feels when someone is in that state.
At the same time, we were comfortable at our home with everything stocked up. We had groceries, money in bank, and a nice home. Many of us also participated in dalgona coffee challenge and some also posted (including me) pictures of the various nice dishes on social media to showcase our achievements.
Image Source : Deccan Herald
It’s time to acknowledge that we are blessed.
We are blessed to have food on table
We are blessed to have a good sleep
We are blessed to be with our family
We are blessed to not worry about the next meal
We are blessed to still be employed or employable
In short, while we can point to salary cuts/loss and boredom we faced sitting at home, we have to not forget that we are doing extremely well compared to millions. We are extremely blessed and we need to acknowledge it. We need to be grateful that many seek a life which we are already living.
3. We were spending more than required
Over the last 75 days, I spend ZERO on amazon, swiggy, zomato, uber, flipkart, eating out, any outings ..
I think I am doing fine and nothing has happened to me.
That does not mean that spending on those things is a problem, Infact I will restart it again.
But I think we have got a clear message that we were over-doing it. We can survive fine with less online shopping, less outing, less parties, less eating out and what not.
4. We can surely save much more than we think
So we were spending more .. we just saw.
Which means that we can potentially save much more than we think we can, if we control our self and carefully utilize our resources.
5. It helps to have an additional source of income
Imagine for a second that you lost your job and there is no active income coming in
Now imagine another case
Imagine you lost your job, and no active income coming in.. but you also have another income source which brings in some money. So you know at least the food will be on table.
The current pandemic has seen many people lose their jobs and many of them who had alternate income or another person earning income in house knows the importance of it. Before it happens again with you, its time you get serious about creating it.
I always get this feeling that maids in India are paid extremely poorly. After I have been involved in the household work in this lockdown, my respect for maids has gone up to whole new level.
It’s not just time to acknowledge their contribution in our life and making our life easy, but also to pay them their dues well.
A maid in my society gets Rs 600 per task on an average. That’s Rs 20-22 per day given to them assuming 2 holidays. Even if it takes 30 min to do dishes, we are talking about Rs 40-50 per hour wage here which is one of the lowest in the world.
NRI’s or people who have returned back from US or other countries know very well what I am talking about.
It’s time we appreciate them more, don’t be so nosy about their salaries we pay. I know many maids are over smart and try to extract money out of you and don’t do their work properly, but overall I feel they are not paid well enough.
7. Things can do wrong anytime – RISK is always there
Let’s not forget one thing. RISK is always there .. ALWAYS !
Your company may be doing great
Your industry is booming
Your performance has been amazing.
Still, you can be without the job the next day
You may be healthy, never smoked, never ate oily .. you can still get heart attack. The risk is always there!
This pandemic has shown many people that risk can suddenly turn up and show its ugly face.
As Subra says – “Risk is always there, unless the event is complete”
8. It’s time we learn new skills and become more “useful”
The current coronavirus crisis should act like a final warning to all those, who are just dragging in their jobs without contributing much. Get up and acquire the skills. Go upgrade yourself
I know many people from IT sector who are working with old skills. When they apply for other jobs, there are no takers.
If you are not “useful”, you will be OUT very soon. If not today, may be tomorrow – but it will happen for sure
It also helps if you have additional expertise which can help you change your jobs/sectors if situation arises. Borden your skill set and hone your skills.
Stop moving towards the “Obsolete zone”
What was your biggest learning from Lockdown and coronavirus crisis?
So that was all I had to share today.
Can I ask you to share your own biggest learning from this whole crisis and lockdown episode? Also share what you feel about my learning’s?
I generally come across some very basic insurance related queries like
“I am not a smoker right now, if I buy a term plan – will I have to inform the company in case I start smoking in future”
“My father just got diagnosed with diabetes, Can I get a health insurance which covers that?”
“Why my premium have gone up after medicals even though I am fit and healthy?”
“How can an insurance company pay me Rs 1 crore, when they are just charging Rs 15,000 as premium?”
All these questions are very genuine questions and if someone does not understand the principles of Insurance, they will ask them.
So today I am going to share with you the 7 principles on which the insurance industry runs. These are basic principles on which the business of insurance is based on. I hope these 7 principles will clear our all the myths regarding insurance.
Let’s start
Principle #1 – Principle of Utmost Good Faith (Uberrimae fidei)
The principle of utmost good faith is the most basic and primary level principle of insurance and it applies to all kind insurance policies. It simply means that the person who is getting insured must willingly disclose to the insurer, all his complete & true information regarding the subject matter of insurance.
The insurer’s liability exists only on the assumption that no material fact is hidden or falsely presented by the person getting insured.
There is a process called as “Underwriting” in insurance industry which is the activity of studying the risk and assigning the premium value for the case and it’s very important that the person buying any kind of insurance tells all the facts correctly and does not hide it.
If you think about term plan or health insurance, you need to correctly mention things like
If you are a smoker or drinker
Your family illness history
The Industry you work for
Your Income
Your Age
Your current illnesses (which you are already aware of)
If you do not tell these things correctly, you are violating the “Principle of utmost good faith” here and it can impact your insurance claim process in future.
Principle #2 – Principle of Insurable Interest
This principle says that the person who is taking insurance should have some insurable interest in that thing which is getting insured. So if there will be financial loss to the person if the insured object gets destroyed. If this is not the case, insurance cannot be taken
So when a breadwinner takes life insurance for his life, it makes sense because incase the person dies, there will be financial loss to family .
In the same way, you can get your car, bike, home, gold insured because you have insurable interest in that object. You can’t get your neighbor car insured and benefit because you do not have insurable interest in that.
Principle #3 – Principle of Indemnity
Principle of Indemnity says that Insurance is not to make profit, but only to compensate you against the losses incurred. It’s an assurance to restore the same position which was there before the loss.
So the compensation paid cannot be more than the losses incurred.
In term plan, people ask why companies ask for income details. It’s to make sure that a person takes limited insurance which goes with his financial status and is good enough to restore back his family life style which was there in existence.
If a person earns Rs 1 lacs per month. Then Rs 2-3 crores is a good enough life insurance for the person and they cannot take Rs 500 crore insurance even if they can pay the premiums, because then the intention is not to cover your financial loss but to benefit/profit from the insurance policy.
That’s exactly the reason why house-wife does not get very high insurance, because the motive is to profit from the death of non-earning member and not replace the income which that person was earning.
Principle #4 – Principle of Contribution
This principle is just a corollary of the principle of indemnity. As per this principle, the insured company are liable to pay only their own contribution and they have right to recover back the excess money paid from other insurer.
Let’s see how it works.
Imagine you have two health insurance policies A and B , both for Rs 5 lacs sum assured. If there is a claim for Rs 4 lacs, then each insurer is liable to contribute Rs 2 lacs each for this claim.
However in real life, you as insurer can go to any insurer and claim it from them or divide it between insurers. So you can claim full Rs 4 lacs either from policy A or policy B or Rs 2 lacs from A and B each.
However if you claim Rs 4 lacs from company A, in that case company A can recover back Rs 2 lacs from company B as per the principle of contribution.
Principle #5 – Principle of Subrogation
As per this principle, once the insured is paid for the losses due to damage to his insured property, then the ownership right of such property shifts to the insurer. So if your car / bike / house / valuables which you have insured is fully damaged and once you get compensation from insurance company, then they get the ownership of the item and now they can sell off the remains to recover their dues by that process You can’t benefit from the remains of that item.
Imagine this scenario : You have car insurance and the car is stolen. The insurance company will pay you the full claim amount. However now the ownership rights are transferred to the insurance company and if the car is found in future by Police, it will be owned by insurance company
Also, imagine a scenario where a car is insured and the car is badly damaged beyond the use. In that case the insurance company will pay you the claim fully. Now you can’t say that you will still sell off the car parts by getting it repaired because you lose the rights to property.
One more thing ..
As per this principle, the insurer will try to recover their losses from other party later as if they were at your place. Let me give you an example
Let’s say your house is insured for Rs 1 crore. Because of some reason, let’s say your neighbor negligence there was a fire in your house and your house is fully damaged. In this case you will claim from insurance company, and get the money.
But after that the company will try to recover the losses from the culprit in the way you might have done it if there was no insurance. So might file a case against the neighbor’s in court claiming for damages.
Principle #6 – Principle of Loss minimization
As per this principle, it’s the insured duty & responsibility to take all actions to minimize the losses if it’s in their control. The insured person should take all necessary steps to control and reduce the losses if possible
Imagine there is a small fire in the car for example. If the car is insured, the insured person can’t just sit and relax thinking that the car is insured, he will get the claim for sure.
If it’s in his control, he can try to control the fire, call the fire department or take first level steps like throwing water etc. If they don’t do it, it’s the violation of this principle.
Principle #7 – Principle of Causa Proxima (Nearest Cause)
This is a very important principle of insurance which an insured person should be aware about.
As per this principle of causa proxima, when a loss if caused by more than one causes, then the nearest or the closest cause should be taken into consideration to decide the liability of the insurer.
The nearest cause should be insured by the insurer, only then the insurer liability comes into picture and policy holder will be paid. Insurer will not be liable for the farthest cause.
One of the common examples given for this is this
A cargo ship base was punctured by rats and because of that puncture, sea water entered the ship. If you look at the events, there are two reasons for damage of ship
Rats punctured the base of ship (farthest)
Sea Water entered the ship (closest)
Here as the insurance company will have to pay because the ship was insured against sea water entering the ship and that reason was closest.
Conclusion
Understanding these principles are a good way to understand how insurance works and how claim process works. Just because you have taken an insurance policy does not mean that it’s written in stone that your claim will be paid. You claim will be paid only when insurer liability arises in a given condition.
Today, there was a news about 3 months moratorium (which means a temporary relief) benefit on all kind of loans and how investors won’t have to pay their EMI for 3 months. However it was celebrated by investors without understanding it fully.
So I thought of clarifying some doubts regarding it and to share with you that it’s actually not a very big benefit and why most of the investors should not OPT for it.
Let me clarify on what is the EMI moratorium meaning and how does it apply to you?
Meaning of EMI Moratorium
A lot of people in our country might get impacted due to coronavirus and this 21 day lockdown and their incomes and salaries might get impacted. A lot of people may find it very tough to service their EMI on time and there was a need of the hour for some relief. Hence govt has given permission to banks, NBFC’s and housing finance companies to consider an EMI moratorium and pass on the benefit to the customers
Which simply means that it’s not a forced rule, but only a permission given to banks if they want to do it. RBI will not count those missed EMI payments as “defaults” and not count it as NPA (non-performing assets) and also directed banks to not report it to CIBIL and other beaureu
Now it’s up to bank on how they would like to implement it. Banks might pass on the benefit to ALL or some customers. Here are the exact RBI notification wordings you might want to read.
Will your EMI deducted stop ?
No, looks like you will have to apply for this benefit in case you wish to and only when you apply for it, the EMI will then not get deducted. If you just don’t take any action, then the EMI may get auto deducted as always.
A guy names Siddharth told me on twitter that his bank might deduct the EMI (will not pass the benefit) if salary is credited in the account. Here is the conversation snapshot
As I said, this will only happen if you get this benefit from your bank and bank agrees for it. Checkout the tweet below where an investor asked his bank about it and bank person told that it might not be applicable to him if he gets the salary.
Will I pay any interest for those 3 months of moratorium ?
A lot of investors are showing their happiness about this RBI notification and feeling like they are getting some very big benefit. However in reality it’s opposite and it’s suggested for you to NOT take this benefit.
If someone takes this moratorium benefit, they interest will be accruing on the outstanding balance and you will have to pay the interest at the end of 3 months. Their EMI will start getting deducted after 3 months.
What it means is that assume someone has a 30 lacs of home loan, and an EMI of 30,000 (just a random assumption) and interest rate is 8% , then one month interest will be Rs 20,000 (30 lacs * 8% = 2.4 lacs yearly .. Divide that by 12 to get monthly interest = 20,000)
And for 3 months, it will be Rs 60,000 additional simple interest. This additional interest will be added to your outstanding balance and your tenure will go up.
Same is true for outstanding balance on credit cards.
The only benefit you will get here is that you will not be paying any kind of penalty and it won’t be reported to CIBIL.
Update from various banks
Here is a notification from SBI bank and ICICI bank to its customers that interest will still be charged on the outstanding balance if one wants to avail this benefit.
Most of the banks have also clarified that to take this benefit, one has to contact the bank and ask for this benefit. If you don’t take any action, then the EMI will get deducted as usual.
Should you opt for EMI Moratorium benefit?
By now, you must have understood that this benefit is not for someone who is not facing severe financial crunch or whose income/salary is going to go down due to coronavirus impact. So if you can easily pay off your EMI’s, then please do so and don’t opt for this moratorium benefit.
It’s only for someone who is going to see salary loss, job loss and is facing very hard time financially due to this lock down. They are getting TIME from bank side and nothing else.
Do let us know what you feel about it in comments section.
As I write this, Coronavirus is already spreading in India and there have been 148 positive cases in India. 3 people have died.
Coronavirus is spreading across the world and has killed so many across the world (especially China, Italy, Iran, and Spain). A lot of us have bought life and health insurance policies and the natural question you might have is “Does my insurance company cover coronavirus?”
And the good news is the answer to that is “YES”. I also called up the customer care of my term plan and health insurance companies and got a confirmation in audio format which is there below if you want to listen to it.
Almost every life insurance and health insurance policy will be covering coronavirus related claims and policy holders don’t have to worry about it. Even IRDA has issued a guidelines against coronavirus and how insurance companies should deal with it in its recent circular
Life Insurance & Coronavirus (Covid-19)
I just called to the customer care of the insurance company from where I had taken term plan and they told me clearly that the entire claim because of coronavirus will be paid and we do not have to worry about it.
Here is a clarification from Aviva Life Insurance on Coronavirus coverage
Death from these kinds of natural calamities and illnesses are covered in life insurance. So if you have a running life insurance policy, you should not worry about it at all. The claims will be paid
Health Insurance & Coronavirus (Covid-19)
Even in health insurance policies, the claims against expenses for coronavirus treatment and quarantine will be covered. However, when I called my health insurance policy company, they told me that while the treatment in recognized hospital will be surely covered just like other illnesses, the treatment at home will not be covered (this was Religare Care)
Here is a clarification from the customer care of Religare
One of my teammate at the office have the policy with Birla Sun life and they got an SMS which clearly told them that they need not worry about it and its covered. Here is the snapshot of the message –
So, I think you should not worry at all about its covered by your health insurance company, however, you may want to call your company customer care number and verify in case you want to be double sure about it.
Get clarity from your Insurance company
Only the active insurance policies will be cover coronavirus related claims. If someone is in between the purchase of the policy and gets the virus, the policy might not cover it. Please get clarity on this from insurance company. Also on some articles, I read that some health insurance companies may not cover a disease that is declared as an epidemic or pandemic by the World Health Organization (WHO).
So to be double sure about it, it’s better to go through your policies and check this on your own with customer care.
Do let me know what you think about this matter and if you have any more questions.
In the last 1 month alone the markets have corrected by 23% and it was one of the fastest and steepest declines ever in the history of stock markets in India (and globally)
A lot of equity investors are very new to this game and many might be wondering what is going on and why markets are falling?
So in this article, I will just jot down 2 big reasons which are contributing to this steep fall.
Reason #1 – Fear and Panic because of Coronavirus
The biggest reason and the trigger of this huge market falls from the last 1 month is because of the coronavirus.
The entire world is fearful about the spread of this virus and its impact on the world.
In the entire world, the businesses are hugely impacted because of coronavirus. Because of this virus and the fear around it, various factories are shut down and work is stopped. Other companies which needed raw material are not getting it and production is down. Overall manufacturing is HIT.
Which also means that consumption is down and will be down in the near future also and it will only go up slowly over time.
One very simple example is APPLE. Its products get manufactured in China and because China factories is shut down, the apple stock is down because it’s going to hit their profitability.
One more way of understanding coronavirus impact on business is simple meat/poultry businesses especially in India. The demand for Chicken/mutton or other similar items have drastically gone down. No one is buying it. Now imagine the job losses, no sale of associated products like poultry feeds by poultry farms..
Another example is the tourism industry. People are not going on vacations, or booking very less flights, etc. which is directly going to impact so many companies on at a deeper level.
So in general various businesses around the world are impacted and as you might be knowing stock markets chase earnings. Because the future earnings of companies across the world are going to be impacted, the stock markets are just reflecting that today.
Markets are desperately looking for news where we develop some medicine or vaccine for coronavirus which gives some kind of assurance that we will be able to control this virus and further damage.
Reason #2 – Crude Oil Price Crash
Crude oil in international markets has crashed badly.
The oil price was a few days back fell by almost 30% in one single day and hit around $30 per barrel (Oil price in 1947 was $28 per barrel)
This was $120-130 around 10 yrs back and just 2 yrs back it was in $60-70 range.
The huge drop in oil prices also indicates huge slowdown and low demand, even though it’s amazing news for India because we import oil and it’s going to save us billions of dollars in oil bill.
Why is it happening?
Well, its extremely complicated thing for a retail investor like you and me, but for now you should know that there is a price was going on between Russia and Saudi Arabia which has triggered this oil crash. Russia did not honor its promise as per its OPEC promises and now Saudi Arabia is kind of punishing it for going against OPEC and have crashed the prices which as per some analyst is not going up very soon.
You can either read this article or watch this excellent YouTube video to understand about oil crash.
Conclusion
For the last many months, there was a correction expected but the sudden rise of coronavirus has added a new level of fear among investors and the crash happened before people even realize what is happening.
Markets have corrected by a good margin and now we have officially entered into a bear market (above 20% fall is bear market). While no one can catch the bottom and can’t guarantee that more down fall cannot happen, this is surely not the time to sell off your long term money. If it was your short term money, it should not have been there in equity markets at all.
One of the suggestions right now would be to partly invest some money which you don’t need for the next 8-10 yrs and be ready with some cash incase the market falls further from here.
Disclaimer: This is a highly complex topic and I do not claim to be an expert on this matter. I have shared my opinion and my limited understanding, so please feel free to correct me on any point.
