Why this Mumbai woman bought a ₹10 cr term cover
Fear of early death made her opt for term policy but she now has a financial plan in place
Mumbai-based Ruchi Mehta (50) was never too worried about money management until her mother died in 2020. Soon after, she was involved in a long-drawn and tedious process of gaining access to her inheritance. That is when Mehta decided to opt for fullfledged financial planning so that her daughter Kamya (17) did not have to undergo the same experience if something untoward were to happen to her. This was all the more important for her as a single mother.
"By the end of 2020, the agency I was working with shut down. I needed to take stock of all my savings and investments. But that proved to be difficult. More importantly, I had to land a stable job, which I did in 2021 when I joined BookMyShow. The next step was to take charge of my money," she says.
A colleague told her about Mumbaibased International Money Matters (IMM), a Sebi-registered financial planning-cum-investment advisory company. Mehta approached the firm. The background
Mehta was running her own design and production consultancy firm in New Delhi before her marriage broke down in 2015. "I shut it down and moved to my hometown Mumbai," Mehta says. She started afresh and is now working as an assistant vice president at BookMyShow. Mehta had thus far invested in fixed deposits (FDs) and real estate on the advice of her father who died in 2011 and had accumulated decent savings by the time she got in touch with Kalpana Ambavane, a senior financial adviser at IMM, in 2022.
"My broader goal when I went to IMM was simple. I wanted to have a consolidated view of my investments and also ensure the wellbeing of my daughter so that she can pick up the threads without any hassle if something happens to me," Mehta says.
At the time of onboarding, 68% of Mehta's portfolio was in real estate and the rest of it in financial assets. Stable assets such as FDs and a generous bank balance comprised a huge part of financial assets. She lacked growth assets such as mutual funds and gold. She had also bought a term life cover of ₹10 crore for which she was paying ₹6.7 lakh annual premium. "I have a family history of people dying early. This made me seek a high life cover policy so that I can protect
Ruchi Mehta (50), Kamya (17), my daughter financially while I am living," she says.
The portfolio transformation Since real estate is an illiquid asset, IIM decided to focus on her other financial assets. Ambavane of IMM looked into her FD portfolio and calculated the XIRR on a posttax basis for ongoing FDs having different maturities and interest rates. "It came in at 4%. We decided to close some of FDs to deploy the money in equity and hybrid mutual funds," says Ambavane.
Mehta had identified a few goals for herself such as Kamya's education, purchasing a vehicle, home renovation, post-retirement household expenses and a vacation fund. "We recommended that she add a couple of additional goals such as creating an emergency corpus, vehicle loan foreclosure and a medical corpus for herself," Ambavane says.
So far as life insurance is concerned,
Asset allocation
Before
8.9 16.5
22.5 0.5 she did not need such a high term cover. "We recommend life cover only to the extent of total corpus needed to achieve the financial goals. Even if her existing investments grow at the rate of 8%, it would be sorted. However, one cannot ignore psychological needs. We told her to bring the term cover down to ₹4 crore for which she now pays ₹1.6 lakh annual premium," Ambavane says.
Mehta also needed a source of regular income if she were to stop working. "We recommended buying a guaranteed income plan in which regular income would start after a few years. We do not advise mixing investment with insurance, but in her case it was a small part of her net-worth. Since the policy was bought before high premium policies were taxed, we managed to lock in a high yield on a post-tax basis," Ambavane says.
Mehta had a health insurance policy of ₹25 lakh coverage. IMM recommended her to enhance the coverage by taking a super top-up plan which is 51.5
Now 12.4 15.8 21.5 1.1 49.3 an economically cheaper option. They also told her to include her daughter in the policy. A personal accident and critical illness cover equivalent to one year income were also recommended. She now pays ₹29,687 for the base health cover, ₹6,437 for the super top-up and ₹6,400 for the personal accident cover.
Another important suggestion was building a medical corpus to support the health cover during the post-retirement period so that expenses uncovered by the insurance can be taken care of. "We recommended her to set aside any future income receivable such as gratuity and leave encashment for creating a corpus to provide for higher medical expenses (if any)," Ambavane says.
IMM charges a percentage of direct assets under advice (AuA) as a fee, which reduces as the value increases. “The percentage depends on the value of assets and the complexity involved in managing it,” says Ambavane.
(For an extended version of this story, go to livemint.com)
When it comes to insuring your senior citizen parents, it's crucial to choose the right health insurance plan. Now, you might be considering a family floater plan that covers everyone under a single policy. It sounds convenient, right? Well, not always.
Here's the deal with family floaters: The premiums are based on the age of the oldest family member. So, if your parents are older, it could hike up the cost for everyone. Plus, as they age, they might need more medical care, which can drain the coverage meant for everyone else.
That's why, if both your parents are healthy, it might be better to get them their own family floater plan. This way, they get adequate coverage without affecting yours. It's simpler to manage, too—just one policy and premium for both parents.
But if any one of your parents has a serious chronic medical condition, separate individual plans for your parents are the way to go. These plans provide coverage tailored to each of them, shielding one from the other's medical expenses. Sure, you'll pay separate premiums, but it ensures comprehensive coverage for their specific needs.
So, there you have it. It's not
Mehta sought the help of a registered investment advisor to take control of her finances
a one-size-fits-all decision. Consider your parents' health and what works best for your family before making a call.
Should I buy term insurance for my wife, who is a homemaker?
—Name withheld on request
Instead of solely focusing on your wife's earnings, let's assess the financial impact her absence would have on your family. Here are some factors to consider:
While your wife may not earn any money, her contributions to the household might be substantial. Think about the value of her caregiving for your elderly parents, household management, and childcare. What would it cost to replace these roles if she were no longer there?
If your wife were to die unexpectedly, would there be any financial implications beyond emotional loss? Would you need to hire help for household chores, childcare, or tutoring? Calculate the potential expenses associated with maintaining your current lifestyle in her absence.
Term insurance isn't just about immediate financial needs; it's about securing your family's future. Consider how your daughter's education and other long-term goals would be impacted in your wife's absence. Does she contribute significantly to your child's education and well-being, and would replacing her role with external support incur additional costs?
Evaluating these factors and make an informed decision on purchasing term insurance for your wife. If the potential financial burden outweighs your current resources, consider obtaining term insurance coverage to safeguard your family's well-being.
Aayush Dubey is co-founder and research head of Beshak.org.
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