Term Life VS Whole Life Insurance-The Eternal Debate

               

                            Here in insurance we have a number of different kinds of life policies. The choices we have are vast which results in confusion while choosing which kind of policy one wants. Here when one is faced with a greater number of  choices  greater is the chance he will make the wrong one. So how are you going to make the right decision. Will you be just another face in the crowd…If not read about Insurance Planning at   IndianMoney.com.

                      So what is term life policy. This is mainly a life insurance policy which provides coverage at a fixed rate of payments called the premium for a fixed duration or a time limit. Here term life insurance is a pure insurance policy where 100% of the cost of premiums is applied for the cost of insurance. If you find this information   useful you can explore our unique Free Advisory Service just by giving a missed call on  02261816111 for your Insurance and Financial Planning needs.

                Then what is Whole Life Insurance. Here the insured can opt for the single premium or regular premiums which have to be paid lifelong. This policy is valid for the whole life of the user. This is as long as the policyholder is alive. Here the sum of money is accumulated and the bonus is paid to the beneficiary on the death of the policy holder. The policyholder is not entitled to any money during his own lifetime. Here whole life policy combines a term policy with an investment component. The policy builds cash value which one can borrow against.  However here one must remember that whole life policies are expensive as the premiums charged also include the investment component , which has to be paid out on the death of the policy holder. Generally the premium for whole life insurance remains constant during the entire term of the policy and the policy holder gets life cover throughout. The premium terms differ, ranging from single premium plan   payments for a whole life policy and there are   riders  such as accident benefits available on whole life insurance We know that human tendency is to admire complexity but reward simplicity .We aim to simplify your needs by asking you to look up the website IndianMoney.com for your Insurance Planning needs.

Single Premium Whole Life Policy:

Ø  Here premium is paid  in a lump sum.

Ø  This policy enables the life assured to pay the premium during the most productive years of his life relieving the person of making payments in the later stages of his life when they might become a burden.

Ø  The profit sharing option is available where the policy holder shares in the periodical bonus distribution until the death of the life assured. The without profit option is also available.

Benefits:

Ø  Survival benefits include the sum assured and any accrued bonuses payable on attaining 80 years of age or on the expiry of term of 40 years from the date of commencement of the policy whichever is later.

Ø  Sum assured and any accrued bonuses paid on the death of the policyholder.

Ø  The policy may be surrendered after it has been in force for 3 years or more. The Guaranteed surrender value is around 30% of basic premium paid excluding the first years premium. In case of single premium the guaranteed surrender value is 90% of the single premium paid excluding any extra premium charged.

Ø  Premium paid under this policy are tax exempt under section 80C and maturity proceeds are tax exempt under section 10 (10D)

Term Insurance Beats Whole Life Insurance Hands Down:

    Here life insurance is very essential to protect ones dependents. If a person dies prematurely then his homemaker wife might not have the necessary funds to purchase the groceries. Here all financial advisors advice you to go for term insurance. But why do they do this….Is there any logic in this…On a Lighter Note I Want To Show You The Way Out..Which Way Did You Come In…

Ø  Term insurance is simple and cheap. It is basic insurance with a pure protection policy. The premiums for a Whole Life Policy are around 4-5 times higher than the comparable term policy for the same death benefits.

Ø  Whole life policies have a history of being pushed through by insurance agents because of higher commissions. Here some families end up paying for the wrong benefits. A family’s main concern should be the maturity amounts payable on the death of the primary breadwinner. Any cash benefits and investment benefits are secondary.

Ø  Here since premiums for term plans are cheap the difference is easily available for investments which would give higher returns than say a Whole Life Policy which combines protection with a cash value.

  We all know that it is hard to read the label when one is inside the bottle. Insurance agents put us in situations similar to like being in the bottle. It is up to us not to fall prey to such misleading and   mis-selling practices. Here in order not to fall for such tactics it is necessary to brush up on Financial Planning and Insurance Planning .Please lookup the website IndianMoney.com for such Planning needs. On a lighter vein..The Winner Of A Rat Race Is Still A Rat…The Insurance agent Always wins…

Whole Life Insurance Fights Back:

Ø  Here let us consider a case where a person wants to leave a huge legacy for a disabled child. He would take up a Universal policy where on his death , the disabled child (beneficiary) gets the sum assured as well as the accrued bonus.

Ø  Here let us consider a case where one of the parents has a genetic disorder which has a high chance of being passed on to their children. Here if the person takes up a term policy and does not die for a certain number of terms he would land up paying a higher premium as the term comes up for renewable. On death the amount obtained would be very less compared to a cash value plan such as a Whole Life Policy where he gets death benefits and an accrued bonus.

Ø  Wealthy people can use whole life in their estate planning by setting up an insurance trust that will pay their estate taxes from the proceeds of the policy.

   Here one can continue the debate endlessly as to which policy is better for a policy holder without arriving at any rock hard conclusion. Each insurance policy has its own benefits and one should pick up such a policy based on ones needs .Here needs of individuals turn out to be different based on different  circumstances. Hence one would be wise to choose a policy after through online  research , based on ones needs and gain Financial Knowledge in the vast field of insurance. I would like to end this article by stating that although our time is finite the demands made on us in our finite lifetime are infinite.Here is something for you to ponder..In Winter Why Do We Try To Keep The House As Warm As It Was In Summer…While In Summer We Complained About The Heat.

Wealth Tax-Wealth Doesn’t Mean Great Possessions But Fewer Wants

         

              We have all heard the saying “Desire Is A Well That Never Dries Up”. Wealth is a relative term. It can never be measured. It is never enough .Don’t we all feel that how much ever we have we are not satisfied? Where is that security and feeling of heavenly bliss that money alone can buy? India is a nation which strives to produce millionaires. More the merrier is our motto. Ours is a nation which aspires to be one of the Dollar Billionaires’. We have about 50 people in our country with a Net worth of about 4500 crores. We have about 2 Lakh Dollar Millionaires in our country. Crème De La Crème….  Remember A Golden Key Can Open Any Door….   

           The rich are taxed the world over. Remember the Cyprus case in which the rich were taxed, mainly a tax imposed on their bank deposits in order to fund the nation’s bailout package. Can our nation be far behind? Aren’t our neo rich unhappy with the 10% surcharge imposed on their earnings?  I would like to remind all of you that the team of Financial   Planners at IndianMoney.com  are always there for you to plan your Taxation needs in a most efficient manner. You can explore this unique Free Advisory Service just by giving a missed call at 02261816111. 

     So What Is Wealth Tax….Here we have wealth taxation in India known as the wealth tax act 1957.It is a direct annual tax levied on the ownership of certain assets by individuals and HUF even though these assets may not generate any income. Pensioners, The retired, senior citizens no one has been spared by this tax. This tax needs to be filed by July 31^st of the assessment year. Remember always pay your wealth tax on time as the late payment of wealth tax attracts a penalty of 1% of interest per month for each month of delay. Do not even try to evade your wealth tax as a heavy penalty of five times the tax amount due may be imposed.

  

  So How Much Is the Wealth Tax Charged …This is basically an amount of 1% on net wealth above and over 30 Lakhs. Let us consider the net wealth to be 75 Lakhs. Then we have the difference of 75 Lakhs over and above 30 Lakhs. This translates to be 45 Lakhs charged at 1 % .An amount of INR 45000 is charged as wealth tax.

  On What Is The Wealth Tax Charged….

·         Commercial Buildings and nearby land.

·         Jewelry, Bullion, Articles made totally or partly of Gold, Platinum, Silver or an alloy of these metals.

·         Residential Buildings and nearby land

·         Yachts, Aircraft and Boats.

·         Guest Houses and the nearby land.

·         Urban land located within a local authorities jurisdiction and has at least 10000 people as per the last census conducted   before the valuation date. An area within 8 Kms of a local authority like the Central Government. 

·         A farm house located within 25 Kms of the local limits of a cantonment board or a municipality.

·         Cash in hand in excess of INR 50000.

·         Precious metals including those in the form of utensils and furniture.

According to the Wealth Tax Act 1957 the following are regarded as deemed assets and wealth tax is charged:

·         Assets transferred between Spouses

·         Assets owned by minors, unless specially-abled child owns any asset it will not be grouped with the parent’s net income.

·         Assets provided to son’s wife or to another person or group of individuals for the benefit of son’s wife.

·         Assets that have been transferred to an individual or a group of people. This transfer must benefit the providers or their spouses in either the short or the long term.

On What Is Wealth Tax Exempt?

·         A residential property that has been allocated to a full time employee by either  the Company, Director, or an Officer with a gross yearly salary lesser than 5 Lakh Rupees.

·         A commercial or a residential real estate property that is part of stock –in – process.

·         Commercial or real estate property used for official or business purposes.

·         A Commercial Complex or an Establishment.

·         A residential property that has been put on hire for a minimum of 300 days in the immediate earlier year.

·         A land where construction is illegal.

·         A land where the building has been set up with approval from proper authorities.

·         An unused land owned for industrial purposes. This land should remain unused for 2 years after acquisition.

·         The land that has been owned by an assessee for 5 years as stock-in-trade.

·         Religious or charitable property owned by a trust or a legal entity.

·         Jewelry owned by erstwhile rulers

·         Residential Property owned by former rulers.

Advantages Of Imposing Of Wealth Tax On The Rich: 

·         April Showers Bring Out May Flowers: Revenues for healthcare, defence and education must come from somewhere. Ours is a nation with ballooning costs in healthcare and medical treatment. With a rising population, food security for the needy and an excellent public distribution system is necessary. Building of Infrastructure and Bridges is necessary for the growth of the nation.

·         Big Fish Eat Little Fish: The rich already have enough wealth and taxing them should be no problem.

·         Everybody Wants To Go To Heaven But Nobody Wants To Die:  The rich may not approve of this but the nation’s ballooning current account deficit and fiscal deficit has to be controlled

.

·         Fair Exchange Is No Robbery: The taxes collected from the rich are redistributed among the poor.

Disadvantages Of Imposing Wealth Tax On The Rich: 

·         Tax increases have a negative effect on the economy as they lead to spending cuts which slows growth.

·         Inflation may rise and high wealth tax on the rich might indirectly affect the middle class.

·         Taxing of the rich transfers money from the private sector to the public sector where it might not be efficiently spent or may land in the hands of greedy politicians for their campaigns.

·         Here we have seen how many rich individuals in USA and France have left their nation and reside in other countries. Rich HNI Indians would do the same and this might affect the progress of the nation. 

  Here I would like to end this article by giving my readers a thought provoking message. We know that wealth alone is not enough to satisfy our needs and there is something extra which we must all do in order to provide that inner gratification .Here we look at Corporate Social Responsibility and Philanthropy. Here we need to look no further than Mr Azim Premji who donated a 12 % stake in his company Wipro valued at $ 2.2 Billion towards education focused Azim Premji Foundation. Mrs Nita Ambani wife of Mr Mukesh Ambani owner of the Petrochemical giant Reliance Industries runs a nonprofit organization for the education and healthcare of the poor and under privileged in India. She is also a part of Reliance and UNAIDS Partnership which is aimed towards halting and reversing the spread of the HIV Epidemic in India. Here we know that Imitation Is The Sincerest Form Of Flattery and if we can, we must imitate these great individuals. We can read up IndianMoney.com for our Taxation needs.

How To Analyse An Equity Diversified Mutual Fund-Never Do Things By Halves

    ^{Here you are faced with a dilemma as to which Equity Diversified mutual fund should I pick up. Oh there are so many hundreds of mutual funds. Which one is the best for me? How do I analyse these mutual funds ?   What do I need to know in order to analyse these mutual funds? All these questions must be running through our minds .Remember every day is not Sunday. Always invest prudently and wisely .I would like to remind all of you that the team of  Financial Planners at IndianMoney.com are always there for you to plan your Mutual Fund needs in a most efficient manner. You can explore this unique Free Advisory Service just by giving a missed call on   02261816111.} 

 ^{How To Rate An Equity Diversified Mutual Fund:}

^{Always Go For The Long Haul:}

    ^{Here remember always run a marathon and not a 100 meter dash .Here a mutual fund may give unusually high returns in a short time frame such as a year. Beware of this kind of fund. You might say why beware..This fund is performing giving awesome returns. However it is prudent to note that too much of a good thing can be a bad thing .Here this is like a hundred meter dash. Strong performances need to survive the test of time. Always go for a fund which performs well over a long period of time. Another reason are these short term performing funds attract a lot of investments. It is always easier for the fund manager to manage smaller investments as we note a bike can navigate small roads better than a truck. Here a higher rating is given to a mutual fund which performs over a long period of time. Remember it is always important to get over the finish line and not fall before it. Assign a higher rating to a mutual fund which performs for a long term frame.}

^{Measure The Returns Of A Mutual Fund:}

   ^{Here in a mutual fund we have the Growth Option and the Dividend Option. In the Growth option the profits are reinvested in the fund. This increases the NAV of the fund .In a Dividend option the profits are distributed to the investors as dividends. Here we need to analyse and check if the fund is a Growth option or a Dividend option .If we have an investor who takes high risks for high returns he would be interested in the Growth fund. Here a young investor who has a high risk taking ability invests in a growth fund and an elderly pensioner who needs a regular monthly income invests in a Dividend fund. Here we assign a higher rating to a Growth fund over a Dividend fund if we want high returns on high risks.}

^{Always Be Aware Of The Charges In A Mutual Fund:}

       ^{Here Equity Diversified Mutual funds had an entry load of 2.25% which was removed in August 2009. Here funds charge an exit load of 3% if funds are redeemed within 6 months of allotment or at 2% if funds are redeemed within 2 years of the date of allotment .Here always be aware of the exit loads charged in these funds which might include administration fees, Sales and Distribution fees, Management expense ratio which might be very high. Here one charge you must give due importance is the management expense ratio. The management expense ratio gives us an idea of the amount of the funds charges that are diverted towards the sales charge. Here a low management expense ratio means a higher rating. Here annual expenses involved in running a mutual fund include administration costs, management salary and other overheads. Expense ratio is the percentage of assets that go towards covering up of these expenses. Here higher the expense ratio and management expense ratio a lower rating is assigned} 

 ^{Reputation Of The Fund House And The Fund Manager:}

        ^{Here the reputation of the fund house plays a very important role in the performance of a mutual fund. Don’t we all invest and make our purchases on the reputation of brands? If it is shoes it may be Nike .Cars it may be Audi..Similarly the reputation of the fund house matters and a higher rating is provided to a more reputable mutual fund house. So What Does A Fund Manager Do?}

^{·         Makes Decisions based on Research that go far deeper than just mere performances and risk evaluation.}

^{·         Conducts Qualitative and Quantitative analysis for the purpose of making an informed decision.}

^{·         Monitors the changes in the economy, Studies the regulatory rules, Studies Economic Techniques and uses decision making skills.}

^{·         Studies the market conditions and market cycles and movement of commodities.}

^{·         Represents the fund by speaking to the Media, Regulators, Industry Leaders and the Investors.}          

^{·         Mutual fund managers should always try to beat their benchmark index.}

^{·         A mutual fund manager should try to lower the expense ratio and improve the rating of the mutual fund house.}

 ^{Here a good mutual fund manager makes a good and a reputed mutual fund house. This assigns higher rating to the mutual fund.}

        ^{Risk And Risk Adjusted Returns-A Measure Of Volatility:}

^{Let us understand this concept by comparing 2 Equity Diversified mutual funds .Let us imagine that an Equity Diversified mutual fund invests in just a set of 3-4 stocks .This gives us a return of 15%.Another Equity Diversified mutual fund invests in a number of different kinds of stocks across various sectors. This also gives a return of 15%.Here we notice that the returns are the same. Here both are Equity Diversified mutual funds. However the size of the portfolio varies. Bigger the portfolio more is the diversification. This lessens the risk associated with a largely diversified mutual fund. Here an investor prefers this kind of a fund as it gives large returns against a lesser risk. Here while comparing a funds performance it is very necessary to check the risk exposure of these funds. This is very important while analyzing historical returns. Here we also have to consider risk adjusted returns. Here we have a measure of risk which gives us certain returns. This basically measures how much risk is necessary to produce those returns.}

^{How To Read Those Greek Words Which Measure Risk And What Do They Mean:}

  

    ^{Standard Deviation is used to measure volatility. Here we have average returns. Standard Deviation measures how much the returns have fluctuated above or below the average returns. Here a high value of Standard Deviation means a highly volatile fund. Here let us consider a Standard Deviation of 15%. Here we have a fund which gives us an annualized return of 10%..Here this means that historically the fund has given a return in the range of -5% to 25%.}

 

^{·         Sharpe Ratio: This measures how much returns are generated per unit of risk. Here a higher value of Sharpe Ratio means that the fund generated higher amounts of return while taking on lesser risk. Here we have the difference of the returns generated by the fund where we subtract the risk free rate of return which is basically the return from a Government Bond or a treasury bill and divide by the Standard Deviation.}

^{·    Beta: This is basically a measure of the funds volatility when compared or benchmarked to a given index. A Beta of 1.0 means the funds movements correlate with that of the index and if the index goes up by 8% so will the returns of this kind of a fund. Here the Beta value is 0.80 which means the fund is 20% less volatile than the benchmark Index. Here the Beta value is 1.2 which means that the fund is 20% more volatile than the benchmark index. Here a mutual fund with a lower Beta is suitable for investors taking lesser risks. A negative Beta means funds returns move in the opposite direction to the index.}

^{·         Alpha: Alpha is basically the difference between the actual returns and the expected returns. If it is positive the funds return beats the benchmark index. If it is negative the funds returns are lesser than the benchmark index. Here a positive value of Alpha is preferable.}

    ^{Here we can assign a rating for the Equity Diversified Mutual fund based on the values of   the following:}

^{·         A low Standard Deviation is a measure of less volatility.}

^{·         A High value of Sharpe Ratio means higher return with a lesser risk.}

^{·         Here a mutual fund with low Beta is suitable for investors taking lesser risks.}

^{So How Do You Assign A Rating For A Mutual Fund:}

^{·         Here people generally rely on the ratings provided by Morning Star and Lipper which use a ranked system of rating for mutual funds.}

^{·         Morningstar uses star rating with the best being a 5 star rating.}

^{·         Here Morningstar categories funds based on 9 Categories. Large Size, Large Blend and Large Growth. Medium Size, Medium Growth, and Medium Blend. Small Size, Small Blend and Small Growth. Here funds are classified based on valuation and market capitalization in order to classify them in the above groups.}

^{·         Here Lipper does not compare the performance of one   Equity diversified mutual fund with another Equity diversified mutual fund. But compares the performance of an equity diversified mutual fund with a benchmark index.}

^{·         This reflects the areas where the fund invests, the amount of flexibility used by the fund manager and the extent to which the fund is aggressively managed by the fund manager.}

       ^{Here I would like to end this article with the phrase   “Hard Work Breaks No Bones”. So I would advise all my readers to follow this principal and do not compromise on the Studying and Analysis of the Equity Diversified Mutual Fund. You can always look up the website IndianMoney.com for your complaints and queries regarding mutual funds.}