X

Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2018 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.


Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
How A Financial Guardian Busted Rishabh's Insurance Myths - Outside View by PersonalFN
  • MyStocks

MEMBER'S LOGINX

     
Login Failure
   
     
   
     
 
 
 
(Please do not use this option on a public machine)
 
     
 
 
 
  Sign Up | Forgot Password?  

How A Financial Guardian Busted Rishabh's Insurance Myths
Mar 24, 2017

"You need to buy insurance", suggested Mr. Verma, an insurance agent, to Rishabh who graduated from a top B-School, landing a job in Morgan Stanley.

"Beta aap kamane lage ho, aapko jeevan bima ki jaroorat hain" (You have started earning and you need Life Insurance) added Mr. Verma. Over the years, parents, peers, colleagues, and society played an important role in shaping Rishabh's outlook towards money. He was expected to follow the social norms without challenging them.

And Rishabh, like most Indians, was a conservative investor. He preferred capital protection over the risk of beating the market. Fixed Deposit, Recurring Deposits, NSCs, KVPs, PPF, Gold, Real Estate, and Insurance were the prominent products he invested in.

"They guarantee peace of mind and I receive a fixed sum of money on maturity sans market fluctuation. Why should I bother to invest anywhere else?" was his rationale about his investment choices.

For Rishabh, Mr. Verma was a well-meaning friend who had been with his family for years... and his advice was gospel truth. Over the years, he had invested heavily in insurance until he met Prathamesh, a Certified Financial Guardian, who busted the myths Rishabh long believed to be true.

Myth # 1: Insurance is synonymous with investment

Rishabh, like many novice investors, believed that insurance is an investment product. Insurance companies, agents, and proponents of insurance as an investment cemented this view through advertisements and brochures. The use of positive psycho-socio terms like "Guaranteed Returns"; "Waiver of Premiums"; "Child Plans"; "Capital Protection"; "Bonus"; "Pension Plans" resonated with his "take-no-risk-attitude". This was seriously hampering his investment performance and his financial goals.

Even the neighbourhood bank had positioned life insurance as a "one-size-fits-all" product, offering it as the lifeline to achieve all financial goals; ignoring the fact that in the long run, it offers a paltry return of 3 to 6% p.a. on investment.

"Just think for a moment", Prathamesh suggested. "Is that all what you are looking for when you stay invested for over 10 years? Aren't there any other products that can offer a higher return on your investment? Wouldn't it make sense to invest in those products?" These questions made Rishabh reconsider his decision to invest heavily in insurance and ignore the importance of asset allocation.

Myth # 2: Purchase insurance at the earliest

"Insurance is a tool to underwrite financial risk. Risk changes from person to person and a right fit needs to be evaluated. Blindly purchasing a policy, at the earliest phase of one's career, because that's what society tells you to do, is a financial faux-pas" Prathamesh point out.

Insurance should be purchased when one has dependents whose financial wellbeing is dependent upon the primary bread winner. E.g.: young children, a housewife, and elderly parents.

Before anyone decides whether you need insurance or not, introspect by asking, "What would happen to my family if I were to die today?"

The answers spontaneously appear...

An individual, in his early 20s (like Rishabh) with no dependents, will not need insurance. On the other hand, an individual in his 50s having dependent children, parents, or an outstanding loan would definitely need insurance.

So, purchasing insurance is contingent to "dependency and the responsibilities to shoulder" rather than "age" of an individual.

Myth # 3: No point purchasing term insurance

"What's the point of purchasing term insurance when you receive nothing for survival?" questioned Rishabh, realizing he was looking at insurance as an investment option with the expectation of rewards for choosing delayed gratification.

"Is it?" Prathamesh smiled cheekily. "Revisit Myth # 1, if you think so..."

Rishabh saw his "investment beliefs" going down in flames. He had realized that insurance is not an investment vehicle and neither was it required to be purchased at the start of one's career.

His conversation with Prathamesh, a Certified Financial Guardian had helped him reconsider his investment outlook before it was too late.

Conclusion...

Investing is not only about finding the right approach; but more to do with your approach to personal finance; it is personal. When approaches change, so do the results.

So, every time you decide to invest in insurance, ask yourself if the decision will help achieve the goals you plan and dream about. Is it the most beneficial and prudent way to save? At times, it is confusing and the decision can seem overwhelming; but help is at hand: Certified Financial Guardians can guide you on the right path.

Be moneywise and be an empowered investor.

PersonalFN is a Mumbai based personal finance firm offering Financial Planning and Mutual Fund Research services.

Disclaimer:

The views mentioned above are of the author only. Data and charts, if used, in the article have been sourced from available information and have not been authenticated by any statutory authority. The author and Equitymaster do not claim it to be accurate nor accept any responsibility for the same. The views constitute only the opinions and do not constitute any guidelines or recommendation on any course of action to be followed by the reader. Please read the detailed Terms of Use of the web site.

Equitymaster requests your view! Post a comment on "How A Financial Guardian Busted Rishabh's Insurance Myths". Click here!

  

More Views on News

What They Forgot to Tell You About Sensex at One Lakh (Smart Contrarian)

Nov 29, 2017

Stocks that could beat Sensex returns in the long term.

How to Ride Alongside India's Best Fund Managers (The 5 Minute Wrapup)

Jun 10, 2017

Forty Indian investing gurus, as worthy of imitation as the legendary Peter Lynch, can help you get rich in the stock market.

Have You Submitted Your Tax Saving Investment Declarations? (Outside View)

Feb 17, 2018

PersonalFN explains the care to be taken while submitting tax saving investment declarations.

The Foundation for Sensex 100,000 is Laid (The 5 Minute Wrapup)

Feb 17, 2018

Top three reasons for Tanushree's presentation at Equitymaster Conference to be centered around a possible 30% correction.

Vignettes From Ireland (Vivek Kaul's Diary)

Feb 17, 2018

Bill bonner discusses how the US government have created a phony picture of the real condition of the country.

More Views on News

Most Popular

Here's What You Should Do in this Market Crash(The 5 Minute Wrapup)

Feb 6, 2018

The market correction has provided a golden opportunity to buy five high-quality safe stocks.

As the Market Corrects... It's Time to Buy More(Smart Contrarian)

Feb 5, 2018

The recent sell off in the stock market offers buying opportunity in some quality small caps.

The Era of Easy Money is Coming to an End. What Happens Now?(Vivek Kaul's Diary)

Feb 9, 2018

The easy money policy of the Federal Reserve of the United States, which drove up stock markets all over the world, is ending, with the Federal Reserve looking to shrink its balance sheet.

When Small is Not Always Beautiful(Chart Of The Day)

Feb 6, 2018

Big companies enjoying tax deductions and exemptions have an edge over the small companies.

What Should Mutual Fund Investors Do After LTCG Tax Norms(Outside View)

Feb 6, 2018

PersonalFN explain what investors should after LTCG tax norms.

More

Small Investments
BIG Returns

Zero To Millions Guide 2018
Get our special report, Zero To Millions
(2018 Edition) Now!
We will never sell or rent your email id.
Please read our Terms

S&P BSE SENSEX


Feb 16, 2018 (Close)

MARKET STATS