Ask Mint | Giving the gift of life and security

A single-premium policy is the perfect gifting idea for a newborn

The insurance business in India isn’t just growing, but also becoming more sophisticated in terms of product offerings. To help readers keep ahead of developments in this business, Mint features a Q&A on insurance every Monday.

I am a 45-year-old businessman. I have just taken a a Rs75 lakh home loan. I am confident that I will be able to service it. But what if something untoward happens to me? Is there a life insurance plan to insure the home loan? Should I go for it?

Your liability increases the moment you sign on a home loan, which makes it necessary for one to take a life insurance plan. This will help ensure your loved ones a respectable life even if something untoward happens to you. There are two options: You can go for a Pure Term Plan for a sum equivalent to the housing loan. Thus, in the case of any unforeseen event, the insurance cover will come in handy for the family as it would not be burdened with any loan liability. The other option is a Mortgage Reducing Term Assurance Plan that is designed to give borrowers a life cover equivalent to their home loan. With such plans, the objective is to introduce customized risk protection at an affordable price. The payment of equated monthly instalments progressively brings down the outstanding loan over the years and the insurance cover also reduces.

I work in an advertising agency and have been recently blessed with a daughter. My father wants to buy a gift for my daughter. I have suggested a life insurance plan. Does it make sense from a long-term perspective?

You are absolutely correct in suggesting a life insurance policy as a gift from her grandfather. Children’s life insurance is thoughtful, practical and a valuable gift that can help a child take the first step towards financial security.

A single-premium policy is the perfect gifting idea for a newborn. A single-premium policy is a plan where you pay for the insurance policy with only one payment. In other words, it gives the assurance that with a one-time payment, the plan for the child continues and, hence, would help to provide for the critical milestones in her life.

Readers are welcome to write in with their queries to askmint@livemint.com. The questions will be answered by senior executives from leading insurance firms.

This week’s expert is Rajesh Relan, managing director, MetLife.

Avoid the 10 biggest personal finance mistakes

http://www.buffalonews.com/businesstoday/businessfinance/story/134489.html?imw=Y

By Pamela Yip - DALLAS MORNING NEWS
Updated: 08/05/07 5:08 AM

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All of us make financial mistakes, but there are some doozies that can really do lasting damage. We commit those mistakes for several reasons: ignorance, fear, ego, a desire for immediate gratification. Notice that all those involve emotions.

“We make our decisions on an emotional basis — all of us do,” said Rick Salmeron, a certified financial planner and head of the Salmeron Financial Network in Dallas. It can be dangerous.

So in the spirit of helping you avoid committing those financial faux pas, here are the top 10 personal finance/financial planning mistakes many of us make:

1. Not having a goal and a plan for how to achieve it.

Absent winning the lottery or receiving a fat inheritance, financial success doesn’t just happen. You have to know what you want to achieve and then decide how to get there.

2. Not being willing to change your behavior so you can get to where you want to be.

This includes failing to admit that you’re living beyond your means.

Try keeping track of all your expenditures for a couple of months, and you’ll be shocked at where your money’s going. That cup of latte every morning can add up to big bucks by the end of the year.

3. Not paying off your credit card debt each month.

Credit cards can be a great convenience, and they’re necessary today for things such as reserving a hotel room or rental car.

But misuse them, and they can seriously jeopardize your financial future.

4. Making only the minimum payment on credit card debt.

If you carry a balance and you’re making only the minimum payment each month, you’re on a treadmill to nowhere.

“A $3,000 balance at 18 percent interest will take more than 22 years to repay if you only pay the minimum,” said Greg McBride, senior financial analyst at Bankrate.com. “If you pay just $75, but do it every month rather than just the first month, you can repay that balance in approximately five years.”

5. Failing to save at all or to save enough.

What you need is an emergency fund that you can use for unexpected expenses. It also will reduce the need to use high-interest debt, such as credit cards, as a last resort.

Most financial planners recommend that an emergency fund have enough money to cover three months of living expenses.

6. Waiting too long to save for long-term financial goals.

You don’t have to put away a lot all at once if you start early, but you do have to start, and you need to contribute consistently.

One of the best methods is to put your savings on automatic pilot, having a certain amount of money automatically taken out of your paycheck each period and put into another account.

7. Failing to take advantage of benefits provided by your employer, such as your 401(k) or life insurance.

One of the best moves you can make is to start an automatic savings program through your employer’s 401(k). You won’t miss the money, and you’ll have a head start in saving for retirement.

It also will save on your tax bill because the money is taken out before taxes.

If your employer matches your 401(k) contributions and you’re not participating, you’re walking away from free money on the table.

8. Not having any or enough life insurance.

The purpose of life insurance is to provide for your family after you die.

“The probability of getting a flat tire while driving is a fraction of 1 percent,” Salmeron said. “The probability of dying is 100 percent. Would you drive without a spare tire in the trunk? Then why wouldn’t you carry enough life insurance?”

9. Overinvesting in company stock.

Financial planners say you shouldn’t have more than 20 percent of your retirement money tied up in company stock.

10. Letting emotion drive your investment decisions.

You may put too much money in your company’s stock because you fear the unknown of investing in a company you’re not as familiar with.

Likewise, when stock prices fall sharply and your fear kicks in, you tend to sell at a loss and wait to get back in when the market rises back to its original level. Instead, said McBride, “build a well-rounded portfolio that will help you weather the inevitable ups and downs while working toward your financial goals.”