How much Term Insurance is sufficient?

(Source - Mint)

The covid-19 pandemic has driven home the point that taking life insurance is one of the most important financial decisions that one can make.

However, just buying life insurance is not enough. The key is to get an adequate sum assured to take care of your family’s needs. But how much is enough?

We look at four methods—human life value, income replacement value, expense replacement method, and underwriter’s thumb rule—that can help you calculate how much life cover you need.

Human life value

This method considers the economic value or human life value (HLV) of a person to the family. The concept primarily considers the value of future income, expenses, liabilities and investments.

“Under the HLV method, you need to consider your income, expenses, expected future responsibilities, and goals to determine the insurance need. This method is suggested as this gives better clarity keeping in mind the inflation," said Santosh Agarwal, chief business officer, life insurance, Policybazaar.com, an online marketplace for insurance.

If your goal is to sustain the present lifestyle of your family in the future, then determine how much it costs in today’s rupee value. This will help decide the amount of cover that you should take.

This method is recommended by most insurance companies, and many insurers have an HLV calculator on their websites.

Below is one such calculator:

https://www.hdfclife.com/financial-tools-calculators/human-life-value-calculator

Income replacement

Under this method, it is assumed that life insurance should replace the lost earnings of the breadwinner. One of the simplest ways to calculate your income replacement value is: insurance cover = current annual income x years left to retirement.

For example, if you are 40 years old, your yearly salary is ₹15 lakh and you plan to retire at the age of 60 years, the cover you will need is ₹3 crores ( ₹15 lakh x 20).

However, according to Melvin Joseph, a Sebi-registered investment adviser and founder of Finvin Financial Planners, one of the drawbacks of this method is that it can suggest a very high cover by considering future income.

Expense replacement

Under this method, which is recommended by financial planners, individuals need to calculate their day-to-day household expenses, loans, and goals such as children’s education, as well as providing for financially dependant parents for their entire lives. The figure you reach is the total money that your family will need.

The next step is to deduct the present value of your investments and the life cover you already have. While calculating the value of your investments, excluding assets such as the house you live in home and car, as your family members are likely to continue using them. The figure you get by deducting investments and insurance cover from expenses and goals will give you an idea of how much cover you need.

“I suggest expense replacement method, as it gives a more accurate picture of the insurance coverage amount and cover expenses of the survivors till the insured’s life expectancy," said Joseph.

Underwriter’s rule

For calculating the minimum cover you need, you can go by the common thumb rule of having a sum assured that is 10 times your annual income. So if your current annual income is ₹10 lakh, you should have a life cover worth at least ₹1 crore.

However, according to investment advisers, this method does not give the exact picture. “Most of the insurance companies promote insurance cover of 10 times your annual income. That is the reason it has become a thumb rule. The minimum cover should be at least 15-20 times your annual income," said Joseph. Insurance companies also offer cover of 25 times your annual income.

Take professional help to determine the policy type and the coverage that will best fit your budget and your family’s financial needs.

Written by - Suketh Shetty 

A Life Story that needs to Live on

On August 8th, 2021 I lost my mom to Ovarian Cancer. It was a long battle of about 4 years in which she underwent series of chemotherapy sessions, so much so that now I have lost the count (probably 40+). In the last 1 month of her life when she was hospitalized, I would almost spend 16-18 hours of the day with her, and as doctors gave up on her and as she neared her end, I realized how unfair Life has been on her. It was at that moment that I decided that I would pen her life journey here, her story needs to live on.

Growing up, although very much interested in studies, she did not have the opportunity to complete her schooling and had to quit school in 6th standard for failing to pay the 1 Rupee School Fees. The fact that she could not complete her own education may have motivated her heavily to have us educated to the best of her ability. My dad wanted us to study in good schools and so brought us to Mumbai in the early 1990s. However, to sustain ourselves in the city of dreams he decided to leave for middle-east while leaving us under the care of my Mom's younger brother, who was himself trying to find his feet. Despite living in a completely new city, with no knowledge of either Hindi or the local Language, my mom carried on bravely and raised us well for the next few years as we would switch from one rented home to another every now and then.

Happy times!! 6 months before she was diagnosed with Cancer, Mom (in Orange) enjoying her life in her hometown 

In 1997, my father had managed to save enough to buy our own home in Thane and was planning to come back too. For my Mom, it seemed like our one problem of switching homes had come to an end. However, disaster struck not long after, in Nov 1998, we lost our home after a series of buildings neighboring to ours collapsed due to faulty construction or foundation. One of those buildings had collapsed on ours which meant our building had to be demolished too. And just like that, we were back again in search of rented homes. Being just 7 years of age myself, little did I realize the magnitude of what had happened probably because my mom stood strong and did not break down at our situation.

After 3 more years of staying in rented homes, my dad had once again managed to save just enough to buy a new home in a chawl. While everyone around us including my dad was apprehensive of living in a chawl, my Mom wasn't. She had a simple philosophy - There was a school nearby, a hospital for an emergency, no problems with a water supply and more importantly we will have a home to live in and stop worrying about rents and moving from home to home, don't care what family friends or relatives would say about living in a chawl" In 2002, we moved to our new home in chawl in Airoli, 19 years later we are still living there and perhaps happy with where we live.

By 2017, I had graduated from Engineering and had taken up a steady job, and it had seemed that her days of struggles are coming to an end. My dad was thinking of taking retirement and coming back for good. However, it seemed like God wasn't done with her as in November of that year, she was diagnosed with Stage 3 Ovarian Cancer. Not long ago, she had lost her youngest sister to cancer, so even when we were thinking of not telling her about her cancer she had probably figured it out herself. She showed enough fighting spirit and willingness to fight it out. An Operation and six rounds of chemo later, the reports came out good and she was declared cancer-free, However, the doctors had warned that cancer shouldn't relapse within 2 years. 

Some Good days

Unfortunately for her, she relapsed just within a year. After another bout of chemotherapy, she was cleared for the 2nd time in 2019 but once again, days before nationwide covid lockdown she relapsed for the 2nd time. It was downhill ever since, although we tried everything the results never improved, and at some point, she had accepted her fate. More than her impending death she was more concerned about us and what would happen to us without her.

During her last days in the hospital, I would spend 14-16 hours a day beside her. As the doctors confirmed the inevitable, all I hoped and prayed for from god was to not make her struggle in pain. For once, I guess he listened to my prayers. Her last few days went ok, she didn't look in pain, or at least she didn't show the pain, and the evening of August 7th, she closed her eyes never to open again. She breathed her last on the morning of August 8th.

Few days before her death on her hospital bed, she had mentioned to me that she was very proud of us and that it is one of the few good things in her life. I played it down at that time but that is the only thing I remember the most. I am not sure how to end this post, been stalling this for weeks now, just didn't have the courage to write about those moments. 

I hope she is in a better place now and that is all I want for her.

These are the major companies that accept Bitcoin as payment.

Cryptocurrencies are never far from the headlines these days.

 
While buying and selling cryptos is becoming increasingly mainstream, the opportunities to spend virtual currencies are somewhat limited in comparison due to its volatility.

There are, however, a growing number of companies across a plethora of industries - from big tech to airlines - who are embracing cryptocurrencies, allowing customers to use them as an official method of payment for their goods and services.

Here are some of the biggest and more well-known companies using cryptos:

1. Pavilion Hotels & Resorts

As the latest company to permit crypto transactions, the Hong Kong-based Pavilion Hotels & Resorts group has also become the first international hotel chain to embrace virtual currency payments. The group - which owns properties in Amsterdam, Madrid, Lisbon, and Rome as well as Bali and Phuket - will accept bookings using 40 different tokens, including Bitcoin and Ethereum from July through their partnership with payment platform Coindirect.

2. AXA Insurance

As of the start of April, the insurance broker behemoth will allow customers in Switzerland to use Bitcoin as a payment option for their bills. The decision to embrace cryptocurrencies has been in the pipeline since market research conducted by the company in 2019 found that nearly a third of respondents aged 18 to 55 had either already invested in them or were interested in doing so.

Customers will now have a reference code printed on bills for non-life insurance policies in order to pay their premiums through crypto exchange Bitcoin Suisse which will then convert them into Swiss Francs.

 
3. Microsoft

As one of the largest software companies in the world, it is significant that Microsoft accepts Bitcoin payments, going some way to instill a degree of confidence in using cryptos. Redeemed for credit in topping up user accounts, Bitcoin can be used to pay for an array of services, including Xbox Live and Skype.The company’s interest in crypto technology doesn’t end there. Utilizing blockchain, Microsoft has also launched ION, a two-layered authentication platform on the Bitcoin network in late March. Instead of payments, the technology creates digital IDs to authenticate online identities.

 
4. Starbucks

Following an extensive trial, Starbucks customers can now use the new Bakkt app to pay for drinks and goods at the coffee chain with converted Bitcoin. According to the app’s creators, 500,000 people took up the invitation-only, early access programme to test the digital wallet as a method of payment.

5. Tesla

The CEO of electric carmaker Tesla Elon Musk has an up and down relationship with Bitcoin. Initially, the company announced earlier this year that it would accept Bitcoin payments for vehicle purchases in the US. It comes off the back of a $1.5 billion (€1.2 billion) investment in the cryptocurrency by Elon Musk’s company in February. However, this has now been turned on its head with pronouncements that Tesla will put Bitcoin transactions on hold until more than 50 per cent of tokens are mined using renewable energy.

 
6. Amazon

It was reported earlier this year that Amazon was joining the ranks of other tech giants, including Facebook, in laying the groundwork for its own exclusive cryptocurrency. That said, the e-commerce company doesn’t directly accept cryptos yet. You can, however, buy Amazon vouchers through crypto-only company Bitrefill, a platform that makes living on cryptocurrencies easier by converting Bitcoin into gift cards, refill phones, and so on.

7. Visa

Credit card company Visa confirmed at the end of March that it was piloting a scheme with the platform Crypto.com to accept cryptocurrency to settle transactions on its payment network. It will now accept USD Coin (USDC), a stablecoin crypto that is pegged to the value of the US dollar.

8. PayPal

Following an announcement in October last year, PayPal users can now buy, sell or hold a select few cryptos, including Bitcoin, Ethereum, Bitcoin Cash, and Litecoin. In addition, you’ll be able to track cryptocurrencies through the PayPal app. The only drawback is that money can’t be transferred out of the company’s digital wallet.

9. airBaltic

Latvian airline airBaltic became the first aviation company in the world to accept Bitcoin as payment for fares back in 2014. According to the company, it has processed more than 1,000 Bitcoin transactions since it launched the payment option seven years ago. Its decision to do so saw another eastern European airline, LOT Polish Airlines, follow suit the following year.


10. Coca Cola

Amatil, the drinks’ giant’s bottler and distributor in the Asia-Pacific region, has enabled cryptocurrency as a method of payment through its partnership with the Centrapay platform. As of 2020, there are now over 2,000 vending machines in Australia and New Zealand which are geared to accept cryptos to pay for drinks.

11. LOT Polish Airlines

Following in the wake of airBaltic, LOT Polish Airlines announced in 2015 that it would also accept Bitcoin as a payment method for flights. Despite the six years that have passed since its decision, LOT remains one of the only European airlines to allow cryptocurrency as a payment option.

12. Expedia

Travel giant Expedia is one of the most prominent travel agencies to accept Bitcoin through its partnership with crypto-friendly travel booking platform Travala. You can now book 700,000 hotels from the website’s listings with more than 30 different cryptos, including Bitcoin.

13. Lush

Lush was one of the first global companies to adapt to the use of cryptocurrencies, fully embracing them in 2017 when the handmade cosmetics company started to allow Bitcoin payments for orders on its website through a partnership with Bitpay.com.

Written by - Suketh Shetty

The investment hack that supersedes all: Invest in yourself.

You need to look at ROI – Return on Investment. One of the best investments you will ever make is in your own human capital.

10 mistakes people make while buying Term Insurance Plan

Our world is full of uncertainties and hence Term Insurance is incredibly important. Since the market is flooded with a multitude of options, choosing the best term plan could be potentially daunting.

In my previous blog I have mentioned why should we take Term Insurance. Now let’s look at Top 10 mistakes that people make while buying Term Insurance in India.

Should you opt for Term plan while Financial Planning?

Financial planning refers to the process of meeting financial goals with the help of appropriate management of your finances. This includes elements of wealth creation, protection, retirement planning, planning for specific milestones, and most importantly planning for emergencies and contingencies. But where does the term plan fit in?

Cryptocurrency – Why do Governments fear them?

Cryptocurrency should be declared word of the decade – I mean even non-saving groups are all praises about this form of “currency” (or not? Let’s call it crypto rather than currency for now)

Now, why do almighty Governments of various countries fear crypto?

That lack of central authority is the primary reason governments are afraid of cryptocurrency. To understand this fear, it is important to know a little bit about governments and their conventional currencies.

Beware of using the ‘100 minus age’ thumb rule for equity allocation

Have you ever heard about the “100 minus age” thumb rule?

NO?

The rule says that you subtract your age from 100 to arrive at the ideal asset allocation for your investments. So, if you are 30, then 100-30 would give 70, which is the percentage of equity you can have in your portfolio. That is, you have Equity: Debt in 70:30 ratio. For someone who is 35, the rule will suggest 65 percent (= 100 - age 35) as the equity allocation. This rule is majorly used to calculate retirement corpus.

One major problem with this rule is that it simply assumes that age alone decides a person’s asset allocation. This not true. Factors such as investor’s risk appetite, goal timelines,tax, and return requirements are the major factors that decide asset allocation as well.

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