findemy.com

Author: admin@kalpas.in

  • Advantages and Disadvantages of Term Insurance in India

    Advantages and Disadvantages of Term Insurance in India

    Term insurance plan is a simple form of life insurance. This insurance plan is specifically crafted to provide financial cover to the near and dear ones in the event of a sudden demise. It provides death benefits by just paying the specific premium for a particular policy timeframe. The death benefits given to the nominee by the insurance provider would help them in meeting their financial needs during the difficult times. It is important to understand each and everything by an insurance product before deciding to invest in it. Let’s know about various advantages and disadvantages associated with a term insurance plan.

    What is term insurance?

    Term insurance plan is a legally binding contract between the insured and the insurer. The person who has invested in the term plan agrees to pay premium charges to the insurance service provider. In return, the insurer promises a protective financial cover over the life of the insured person. The insurance cover offered by a term insurance plan is valid only for specific policy time. This term can range from 10 years to 30 years or more, depending on the age at which you invest in the plan.

    Why do you need Term Insurance?

    Financial security for your family:

    If you are the primary earner, buying a term plan would take care of the monthly financial needs of your family in your absence.

    Secure your Assets:

    You might have taken a loan like an education loan, home loan, personal loan, or a vehicle loan. The repayment of these loans can financially weigh down your family in your absence. The proceeds from your term insurance plan pay off your loans and ensure that the financial burden does not fall upon your family.

    Risks related to lifestyle:

    The probability of developing a lifestyle disease increases with age. Some term insurance plans offer critical illness protection which not only protects your family in case of uncertain eventualities but also during your lifetime. It provides you financial security against various life-threatening health conditions such as cancer & heart attack.

    Types of Term Insurance Plans

    Level Term Plan

    The meaning of level term insurance is that the sum assured remains the same throughout the policy term. However some plans allow you to increase your cover based on specific life events like marriage, childbirth or home purchase.

    Increasing Term Insurance Plan

    Increasing term insurance is a term plan where the life cover amount continues to increase automatically eg- at a 5% per annum simple rate. Increasing term insurance will mean that you don’t need to worry about increasing your life cover as your lifestyle grows. The term plan will automatically keep up with it.

    Decreasing Term Insurance Plan

    Decreasing term insurance means that the life cover continues to decline with time. This term cover is usually given to cover a loan in case of your untimely demise.

    Term Plan with Return of Premium

    In this type of term insurance plan you will receive all the paid premiums at the expiry of the policy if you survive. This plan is popular for offering cash at the time of retirement as most term plans will last that long.

     

    Advantages of Term Insurance Plans

    Cost-Effective: The leading benefit of term life insurance is the cost incurred. Unlike the other investment and life insurance plans, the term plans can be purchased at lower premium prices. This affordability makes even a low-income person easily own an insurance policy with maximum benefits.

    High Coverage: Another good thing is high coverage, which is unavailable in the case of an investment plan. A high coverage ensures high financial security to your family. Anyone would obviously prefer substantial financial security for their family, which the term plan offers.

    Easy and simple to buy: Buying a term insurance is quite simple, easy and quick. You need not be involved in any complicated procedures or paperwork. You can simply buy it online without even the assistance of an insurance agent.

    Surrender Value: The surrender value of the term insurance plan is higher. Therefore, you can surrender your policy and get the attained value in a few years of inception.

    Tax Benefits: The term plan offers you tax benefits, which can be used for your income tax submission or for certain tax exemptions. Therefore, the premium you are going to pay will never go to waste in the case of a term plan.

     Disadvantages of Term Insurance Plans

    No Return on Investment: Unlike other investment plans, term insurance does not give you any return on investment during your lifetime. The only advantage you can expect is to provide your family financial protection after your life.

    Buying at a later stage: When you plan to buy a term insurance plan at a later stage of your life, you end up paying a high premium for a higher sum assured which is impossible for all people. People may need to go for a large sum assured but unable to pay a higher premium. In such times, people are either forced to take up an extra burden to pay the premium higher than what he budgeted or compromise the sum assured.

    No financial assistance if you are alive: This is the major disadvantage of the term insurance plan. You can never expect financial aid from your term plan if you are alive, especially when you want to withdraw a partial amount or any form of return that another type of insurance plan offers.

    No wealth creation: If people wish to create wealth by paying premium towards the term plan, they will only be leaded to disappointments. This is one of the major term insurance disadvantages. Term insurance plans are no-profit plans that means they only enforce you to pay the premium until the term plan matures or the policyholder demises and the sum assured is paid to the family members or the nominee.

    No cash value: You can never expect any cash value from the term insurance plan. The money you pay towards premium is paid, and you can never expect any cash value for it.

     Conclusion

    The above said advantages and disadvantages must have given you a broader perspective on a term insurance plan. There is no doubt that such a plan will always be of good support to your family in an unforeseen incident. Therefore, think of the maximum advantages you will derive from the term plan than the cons and make an informed buying decision.

  • Inflation — Definition, Types, Causes, and Formula

    Inflation — Definition, Types, Causes, and Formula

    The famous former baseball player Sam Ewing once hilariously said, “Inflation is when you pay fifteen dollars for the ten-dollar haircut you used to get for five dollars when you had hair.” 

    Are increasing prices the only effect of inflation? Well, no. Inflation leads to a slew of other consequences as well.

    Inflation has been the subject of infinite conversations these days. Globally, economies are aggressively raising interest rates to battle rising inflation, which has led to erratic risk sentiment. 

    So, what are the main reasons for inflation, and what are its types? Let’s read on!

    What is Inflation?

    Inflation has always been a significant factor for consumers and investors in various markets, including used vehicles, the housing market, the stock market, and others. This is due to the gradual loss of purchasing power of the rupee as prices gradually increase over time.

    A broad rise in the cost of goods and services across an economy is referred to as inflation. Each unit of rupee purchases fewer products and services as the general price level rises. Hence, inflation is associated with a decline in the purchasing power of money.

    The annual inflation rate in India surged to 6.95 percent in March 2022, above market expectations of 6.35 percent and reaching a high not seen since October 2020.

    Is inflation restricted to rising costs?

    Consumers with lower salaries typically spend a greater percentage of their total income on their needs than those with higher incomes, leaving them with less safety net against the erosion of purchasing power brought on by inflation.

    Governments and central banks regulate and monitor inflation through effective financial policies and reforms. Hence, the minimum interest rate can be increased when inflation threatens to surpass a central bank’s target.

    Individuals with fixed-rate mortgages and other loans gain from repaying these with inflated money, cutting their debt service costs after accounting for inflation. In contrast, new borrowers will likely incur higher interest rates when inflation rises.

    What are the Types of Inflation?

    There are 3 types of inflation:

    1. What are the Types of Inflation?

    Demand-pull inflation happens when an economy’s overall demand for goods and services grows faster than its ability to produce them. This happens when the supply of money and credit increases. This raises demand, which causes price hikes. A positive consumer mood increases spending when people have more money, which further raises prices because of greater demand for goods and services. 

    Higher demand and less supply lead to a demand-supply gap, which raises prices. The high increase in vegetable prices in India is an example of demand-pull inflation when vegetable storage elevates the prices.

    2. Cost-Push inflation

    Cost-push inflation happens when overall prices rise due to rising labor and raw material costs. The total amount of production in the economy may decline as a result of higher manufacturing costs. 

    Cost-push inflation results from the manufacturing price increases being passed on to consumers because the demand for goods hasn’t altered. The most common example of cost-push inflation is the oil and natural gas prices. Everyone needs a certain amount of fuel for their vehicles.

    3. Built-In inflation

    The notion that individuals anticipate the current inflation rates to persist in the future is related to built-in inflation. The cost of goods and services is increasing, and as a result, workers and other people begin to demand higher costs or wages to maintain their quality of living. The cost of goods and services rises because of their increased earnings, and this wage-price spiral keeps going as one element drives the other and vice versa.

    What Leads to Inflation?

    Here are 5 main causes of inflation:

    Over-Expansion of the Money Supply

    In addition to cash, the money supply also includes credit, loans, and mortgages. The rupee’s worth decreases as the money supply grows. The cost of imports increases when the rupee’s value falls in relation to other currencies. The overall economy’s prices go up consequently.

    Government Regulation

    Demand rises when the government provides tax subsidies for particular goods. Further, costs could increase if supply is less than demand.

    Also, strict property norms and rent laws may unintentionally raise prices and foster inflation by passing those costs forward to citizens or decreasing the availability of housing.

    Managing the National Debt

    The government has two basic alternatives when the debt is out of control. One is to increase taxes to pay off the debt. If taxes are increased, businesses will probably pass the cost onto consumers through higher pricing.

    The government can also print more money as a backup plan. This may lead to demand-pull inflation. Therefore, if the government employs both strategies to address the national debt, it may impact both cost-push and demand-pull inflation.

    Devaluation

    Devaluation is a downward adjustment to the exchange rate of a nation, which lowers the value of that nation’s currency.

    A currency’s depreciation lowers the cost of exports, which encourages other countries to purchase more of the devalued items. Devaluation also raises the price of domestic goods in the depreciating country, encouraging its inhabitants to favor native goods over imports.

    Rising wages

    Wages are a manufacturing cost. Businesses will have to pass on the expense of a significant wage increase or accept weaker profit margins. The only exception is if they can balance pay increases with increased production.

    How to calculate inflation?

    The inflation rate is calculated using the following inflation rate formula:

    (B – A)/A x 100, where A is the starting number and B is the ending number

    Subtract the prior price of a certain good or service in a year in the past from the current price of the same good or service that is needed for the formula. You will get a decimal as a result. Multiply by 100 to convert this amount to a percentage. You will receive the inflation rate from this.

    Let’s understand with an example:

    Assume that 5L of milk costs 300 INR in 2020 and 320.85 INR in 2022. 320.85 minus 300 equals 20.85. Divide 20.85 by 300. The result is 00695. Multiply it by 100. The inflation rate on 5L of milk between 2020 and 2022 is 6.95%

    The Financial Takeaway

    All prices are expected to rise as a result of inflation. Price levels increase when overall demand outpaces the supply of items available at current pricing. Several things, including government intervention, can bring on inflation. 

    Through financial reforms and regulations, governments worldwide have been attempting to moderate inflation to a certain extent. It should be remembered, nevertheless, that the economy needs a certain amount of inflation to encourage spending and discourage money hoarding through savings.