Why you should review your life insurance portfolio?
The requirement, risk, earning capacity, and financial status remain dynamic and continuously change as people age. People need a different type of cover at every human life cycle stage
Life insurance biz facing headwinds
I read your column about 'Things to consider before buying a life insurance policy' in the Bizz Buzz. Do we need to relook at the existing insurance policies as well? - Mantena Srinivas, Hyderabad
Absolutely. The requirement, risk, earning capacity, and financial status remain dynamic and continuously change as people age. People need a different type of cover at every human life cycle stage. Life insurance, type of policy, sum assured and term etc., are dependent variables. Employment status, earning capacity, advancement in career or business, increase in income, weddings, childbirth, separation from marriage, number of dependents, and other incidents can be classified as independent variables. A dependent variable is a changing parameter whose value will change depending on the independent variable's value. Accordingly, it becomes more important to keep reviewing your life insurance policies and risk cover with each and every development in one's life. On the other hand, the insurance sector is a dynamic industry and growing. Insurance companies keep introducing new riders, policies from time to time. With the proper term, the sum assured, riders, and abundant insurance cover in place - the policyholders and their families can simultaneously have a sense of security, peace of mind, and credence.
A layperson or a youngster may not know and be aware of the nitty-gritty of insurance and would end up taking an endowment policy initially. Some unmarried and young people would have opted and accepted a Unit Linked Policy (ULP). Because their insurance needs are more focused on building wealth. After getting married, one would have chosen money-back policies to fund a future need such as children's education. The need for insurance further changes during the middle phase of a person's life. Risk cover, protection, income protection, and retirement corpus will become a priority for those who lead a family and approach the middle of life.
They must gradually switch to term insurance policies and accidental and critical illness riders. Therefore, one needs to walk the extra mile in order to relook, review, reconnoiter and revise the life insurance portfolio.
Are liquid funds safe and better than bank fixed deposits? - KVB Murthy, Anantapur
Liquid funds are a class of debt mutual funds that primarily invest in short-term assured interest rates in money market instruments with a maturity period of up to 91 days. Liquid funds are another investment choice for conservative investors who invest in term and fixed deposits. Investments in liquid funds can be withdrawn within hours. However, liquid funds are affected by the overall state of the economy and market volatility. Consequently, liquid funds carry a relatively moderate risk. One can invest in liquid funds for both short-term and long-term tenure. Generally, liquid funds provide higher returns than fixed deposits and term deposits. Liquid Funds carry moderate risk in comparison to fixed deposits. In the case of premature withdrawals, the exit load on liquid funds will be very low. In contrast, fixed deposits will have a higher penalty. The minimum investment requirement for liquid funds ranges from Rs1,000 to Rs 5,000, depending on the liquid fund scheme and fund management house. The minimum amount accepted for a fixed deposit is Rs 1,000.
Besides being liquid in nature, liquid funds are considered comparatively safer than any other class of debt mutual funds because of their ability to provide capital preservation. These funds invest in -treasury bills, government bonds and other government securities, certificates of deposits, commercial papers, and corporate bonds.
Historically, liquid funds provide higher tax-efficient returns than fixed deposits and term deposits. Conclusively, investors earned lucrative returns from liquid funds. However, the returns on liquid funds are not guaranteed; liquid funds deliver positive returns on redemption more often than not. Capital gains tax applies to liquid funds if the investment is held for more than three years. The long-term capital gains tax is 20 per cent with indexation. The short-term capital gain, where the investment is held for less than three years, is taxed as per the assessee's tax slab rate. One can invest in liquid funds for as short a period as one day. There will be no exit load on liquid funds if the money is withdrawn after seven days of investment. An exit load varying between 0.0040 per cent to 0.0070 per cent of the redemption amount will be levied if withdrawn within seven days of investment. The interest rate is also higher than that offered by a savings account. Hence, one may consider parking their windfall gains for a short term basis for lucrative returns from their investments.
(The author is a SEBI licensed Research Analyst. The alumnus of the Indian Institute of Foreign Trade (IIFT), he had held leadership roles at National Geographic, Reliance Radio Television Luxembourg, STAR TV, etc)
