Life Insurance Basics & Top Reasons To Buy Life Insurance

Life Insurance is always considered as the foundation stone by the financial experts for good financial planning and is an important thing for people to deal with for safe guarding the financial interests of the family as it deals with the after math of unfortunate events. In this article I have tried to cover life insurance basics and also listed out the top reasons why one should purchase life insurance and who really doesn’t need to buy life insurance.

Life Insurance Basics – What is Life Insurance?

Life Insurance is a contract that we sign with an insurance company to protect our loved ones in case of death of the insured person for which the insurance company usually charges premium (read money) depending on the risk profile of the person. In simple terms, life insurance helps you in securing the financial status (including your liabilities, provided you are properly insured) of your family in case of an unfortunate event.

Why Does One Need Life Insurance?

As stressed out, the loss of a person for a family is irreplaceable and if he/she is the breadwinner one cannot imagine the stress that a family have to handle at a time of unfortunate loss, just imagine a family having no/proper income source and have bills/loans/liabilities to handle and you will understand the importance of Insurance and why you should have one.

Life insurance is primarily for those who are the breadwinner of the family and your family is financially dependent on you and it is a must if you have loans/liabilities. For a family who are dependent on a single person’s income, life insurance can help them in replacing the income of the person in case if he/she dies and will help with in handling the crisis.

Top Reasons Why Should Buy Life Insurance

You Never Know the Risk

Every one of us is certain that nothing will happen to us and even I pray for the same but we never know what’s there in store waiting for us, to speak worse it could be an accident, unexpected illness or could be in another form. So it is one’s primary responsibility to fulfill the financial interests of the family and no one wishes our loved ones to face financial stress for handling recurring expenses like food, bills, education, etc., in our absence.

Loans and Liabilities

Loans could be in the form of car, home or personal and your family may not be in a place to handle the debts that you have and your death shouldn’t be debt for your family and it will be an extra burden to carry in addition to the emotional loss which they already have.

You Can’t Buy Life Insurance When Required

Imagine a situation where in you want to buy the insurance but postponing it for various reasons known to you and in the due course if you develop a critical illness with a risk of life (if not immediately but is certain in future) and in that moment even if you wish to buy insurance you may not get it depending on the risk profile you carry, so it always makes sense to buy insurance when you really don’t need it and just in case when you need it will come handy.

Peace of Mind

Life Insurance Secures Family

What else can give you peace of mind other than insurance which gives you protection for the uncertainties that we carry on our shoulders, although no amount of money can ever replace the loss of a person but it gives YOU peace that your family will ever need to suffer in your absence.

Tax Benefits

Tax Benefits offered on insurance premiums should never be the reason but to make you rejoice or to stress importance of the insurance government is offering tax rebates (under section 80C in India) for the amounts you pay as premiums with ceilings as applicable.

Who Doesn’t Need Life Insurance?

Is life insurance a must have for everyone? NO, if one matches with anyone of the following criteria they definitely don’t need Life insurance:

  • If you are single and have no dependents.
  • For those whose spouse is earning enough to handle the finances.
  • For those who doesn’t have any financial liabilities.
  • Your kids have grown and are financially settled.
  • For a person whose family is wealthy enough to handle finances even in case of your absence.

In this article I have tried my best to cover the basics of Life Insurance, its importance and role it can play in a person’s life and the essential categories of people who need to buy insurance. In future articles I will cover the kinds of insurance policies offered by insurance companies in the open market and what type of insurance policy you have to choose in case if you are planning to buy one.

Between Us: If you are one already having insurance and have stumbled upon this article please share your views and reasons why you have bought your policy and what made you choose it? Our readers might want to know about real life examples and learn from others, after all sharing is caring.

5 Tips for Saving Money on Your Next Road Trip

Smog and air pollution in Pasadena Highway, do...

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Many of us like to travel in the summer. Going on a road trip can be cheaper than flying (and provide more quality time and access to interesting roadside attractions), but the costs still add up. Whether you are saving up for a vacation, or whether you are using your tax refund, you can stretch your dollar a little bit further when you plan ahead and take steps to reduce your expenses.

If you are ready for a family vacation, here are 5 tips that can help you save money on your next road trip:

1. Plan a Staycation

You can save money by staying closer to home instead of planning a long trip. Look for attractions within five to 10 hours of your home and plan a long weekend, instead of a road trip that lasts more than a week. Find out what interesting attractions, from geological features to historical sites to odd roadside stops, are along your route. You might be surprised at what’s in the area.

2. Bring Your Own Food

For $20 to $50 you can get a good cooler that will keep your food at the proper temperature for three to five days. We do this when we travel cross country. We bring deli meats and cheese, condiments, hot dogs, milk and other items in a cooler, making it easy to have a picnic lunch and avoid eating out. We can replenish the cold in our cooler by keeping a gallon sized Ziplock bag stocked with ice from hotels. While we still like to eat out on occasion while traveling, bringing our own food cuts down on food expenses, since we aren’t eating out for every meal.

3. Be Wise About Gas Usage

You can reduce your gas bill by traveling at a moderate speed, instead of going fast. Your car will be more efficient if you travel between 55 and 65 miles per hour instead of going over 70 miles per hour. You can also increase your fuel efficiency by making sure that you are up to date on your car’s service, and that your tires are properly inflated.

4. Map Your Trip

Have a plan. There are a number of free places that can help you find fun attractions and destinations, showing you different ways of getting to where you are going. You can choose scenic routes, or fast routes. Yahoo Trip Planner and the Rand McNally TripMaker Planning Tool are just two great places to turn. Google Maps and Mapquest can also help you plan your trip.

Other tools that can help with trip planning include apps for your smart phone, such as GasBuddy, Urbanspoon, Aloqua, and more.

5. Look for Discounts

Check for different discounts. If you belong to an association (AARP, AAA, etc.), see what discounts are available to members. You can also look for online promo codes to individual attractions (many museums and amusement parks offer discounts online). Go directly to a hotel’s web site, or call the specific hotel you are staying at to see if you can negotiate the lowest available rate. Discounted gift cards can be purchased to help you save money as well when you travel.

If you take some time to look for discounts, and plan out ways to save money, you can have a fun and frugal road trip.

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How To Select Mutual Funds? Step By Step Process Guide You Should Follow

As said in a famous saying “give a man a fish, and you will feed him for a day. Teach a man to fish, and you feed him for rest of his life”. Likewise in my view it is important to know how to select mutual funds rather than knowing about the best / top mutual fund names you can choose today. There are tons of free food available over the web (just Google for “Top 10 Mutual Funds to Invest“), but how do you know the value of the content? For that you should have to know the basics of picking the mutual funds and will you detailed step by step procedure that you need to follow for selecting mutual funds.

First things first, you have to be clear about your goals and the need for your investment and its better to have the clarity on the following things before you start the process.

Why Should You Invest?

The purpose of the investing should be known to you, investing just for the sake of saving may not for you. Please think and list down your goals, calculate how much you need to invest every month to reach your goal, how long you should invest and the expected returns (please be conservative in assuming the returns for equity mutual funds (you can assume a higher return between 15% to 20% while calculating your returns but you should also have to be prepared for 50% downfall (there are chances!) in the market just before or even worse in the year when you are expecting returns, So I would suggest you to be in pain now rather than being sorry in future. I would personally consider 12% as expected returns from my personal portfolio and would treat anything above that as a bonus.)

What is Your Risk Appetite?

Ask I have asked above check how comfortable can you be if you see 15-20% negative returns in your portfolio. Equity mutual funds will be aggressive in nature and likewise the returns will be. Although it is safe to assume that you will see returns in the range of 12% if you continuing for long term (read >10 years) but nothing is certain in life.

What Should be Your Asset Allocation?

Based on your risk appetite you can choose your asset allocation, general thumb rules practiced by financial blogger or advisers in the market is to be in equity for the percentage of 100 minus your current age, for example if your 30 years old your asset allocation should be 70% in equity class assets and 30% in debt assets. Choose the one you are comfortable with, after all it is PERSONAL finance and should be personalized.

How Many Funds Should You Invest in?

There is no thumb rule that tells us about the ideal number of funds you should have in your portfolio, for many even a single equity diversified mutual fund have worked well but if you ask me personally it is good to have minimum of 2 mutual funds from each category (equity / debt / hybrid / etc.).

Once you have settled with the answers for the questions asked above you can go ahead and start the process of choosing the Right Mutual Fund for you.

For the sake of simplicity I am going with ValueResearchOnline website for comparing the returns of mutual funds, you can feel free to use MorningStar, MoneyControl or any other website that you are comfortable with. The steps that you should follow should be same only that the options that you should select will vary as per the website that you choose.

Note: For the sake of an example I am considering “Equity – Multi Cap” fund category in this tutorial, please free to select the category of mutual fund of your choice to shortlist mutual funds.

Step 1: Go to ValueResearchOnline and navigate to Funds and select Fund Selector. Refer screenshot.

Step 2: As I am not obsessive with fund house I am leaving the fund house field unchecked, under fund category I am selecting “Equity – Multi Cap” (refer my note above) and finally in the field Exclude close-end, Plans Suspended for Sales, direct plans (I suggest you to go for direct plans, excluding this category to avoid duplicates and also there is no long history for direct mutual funds is available as they are introduced only on January 1, 2013.) and uncheck 3 star, 2 star, 1 star and unrated. Now click on GO.

Step 3: In the results page, click on returns tab to look 1, 3, 5 & 10 year returns of the funds for more insights.

Step 4: Filter the 5 year returns in descending mode by clicking on return under 5 year category and 10 year returns in descending mode by clicking on return under 10 year category, shortlist top 10 from each of these 2 categories. You will be left with less than 20 mutual funds (as there will be few overlaps) from the ocean of mutual funds.

Step 5: Now click on Risk Stats on sort the returns by Standard Deviation (lower is better), Sharpe Ratio (higher it is better), Alpha (higher is better) and make a note of these ratios for the funds you have shortlisted in the earlier step.

Step 6: Check the expense ratio of mutual funds under fees & details and make a note of them in a separate tab.

Step 7: This is where we will be making out our selection of mutual fund, sort out the results you have shortlisted by Standard Deviation, Sharpe Ratio, Alpha and finally by expense ratio and select the number of funds based on the decision you have taken earlier (can 1, 2 and never more than 3) and start investing.

I will post about the funds I have shortlisted but that is feed for another post and I will update this article once I have published it.

Between Us: Please let us know your views on this exercise of choosing the best mutual fund with conviction and in case if you are already a mutual fund investor please tell our readers about the process you have followed to select the mutual funds that you have invested till now.

Please share your feedback and additional inputs on this process so that we can fine tune the mutual fund selection methodology which would benefit each of us. Wouldn’t that be a win-win situation for all?

5 Things You Should Understand About Social Security

Modern Social Security card.

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There has been a great deal of talk and speculation about the Social Security program lately — and for good reason. Social Security is projected to be insolvent relatively soon, and it does not help that government accounting practices are constantly “borrowing” from Social Security. As a result of some of the tricky math going on, we may not even have until 2037 before the system goes bust.

While Congress scrambles to try and fix the problem (which would be nice because 2037 shows up a little bit before I am likely to retire), here are 5 things for you to think about when it comes to Social Security:

1. It Was Never Meant to Replace Income

We have become extraordinarily dependent on Social Security as a society. Indeed, many people plan retirement around Social Security. However, when the program was first introduced, it was meant to be supplemental only — it was never meant to replace your income. Additions like adding disability and spousal benefits also came later, even though the original program was designed to pay benefits only to the retired worker. In light of this history, and looking to the future, it becomes especially important for you to plan your retirement without relying too much on Social Security.

2. The Self-Employed Pay Twice as Much Into the System

I love being my own boss, but being self-employed can have its challenges. One of those challenges is what is paid into the system. The self-employed pay 12.4% of their taxable incomes into the Social Security system. Others only pay 6.2%. Why? Because employers pay a matching amount for each employee. Before you quit your day job, consider the added cost of Social Security payments, and consider that lower pay in a regular job may be more about the benefits you get.

3. The Longer You Wait to Collect, the Higher Your Payment Will Be

One of the things to consider as you plan your retirement is how long to wait before you begin collecting Social Security benefits. You can begin receiving payments at age 62, but you will not be eligible for as much as you could get if you can wait until you are 70. For those closer to retirement, waiting longer can be a good thing. If you have a way of working part time, or using alternative income streams, it is possible for you to collect higher payments by waiting longer.

4. You May Not Get Cost of Living Increase

Before 1975, it took Congress to provide cost of living increases to Social Security payments. Now, Social Security is tied to the Consumer Price Index (CPI). But that does not mean that there will always be an automatic cost of living increase. If the CPI does not move higher, neither will Social Security benefits. Additionally, there is nothing to stop Congress from working some of its legislative magic and doing away with a cost of living increase each year. You will probably need to find some other way to protect yourself against inflation.

5. Social Security is About to Go Paperless

In an effort to save $300 million over five years, Social Security is about to go paperless. Paper checks will be abolished by March 1, 2013. You will need to set up a direct deposit for Social Security payments, or use the government’s Direct Express Debit MasterCard. The switch begins next year, on March 1, 2011.