Is Insurance a Savings Instrument?

An increase in the disposable income of Indians has led to an upswing in the lifestyle of people. A growing need for insurance has also been observed, as more families are dependent on only one earning member.

There are two types of life insurance - term plans, which are the simplest and cheapest form of risk cover, and savings based plans, where one can expect returns after a period. The number of savings based plans have recently been on the increase.

People are viewing it as an investment instrument; like market-based Unit Linked Insurance Plans (ULIP) as equivalent to another Mutual Fund. But it is not entirely their fault. Insurance Advisers are 'misguiding' them into buying these savings based plans as investments with an added benefit of risk cover, instead of the other way round.

However, consumers need to keep in mind that most of these plans are beneficial (both risk-cover as well as returns wise) only in the long term, though most insurance agents push them as only a 'three-year' investment. Incidentally, neither ULIPs nor Mutual Funds 'guarantee' returns.

An ideal way of insuring, as most financial planners would put it, would be to buy simple term plans for life risk cover and diversified investment of the rest of the savings in other instruments like mutual funds, public provident funds, and bank deposits.

Smart Cards, Stupid Spends

How many times do we over-spend our credit cards? Nearly everyone has had an experience with that. The number of 'reckless' spends are are no less either. Ever swiped the plastic and ended up paying up within just eight days for that special gift you bought for your mother? Which is why, here's a primer on 'How to use that piece of plastic wisely so that I don't end up in a mess'.

I won't be discussing on capturing these companies' latest offers to the fullest, nor about stupid cash-back offers, but really how the whole system works - You see, a background of it all would give us a fair idea of what separates the we-know-we-have-spent and what-the-credit-companies-think-we-have-spent. I shall talk about the bare essentials that you need to know, without straining your eyes scrolling through the whole gamut of fine print on the forms that you signed months ago.

Sure, credit cards give us a fair reason to use them - they're accepted at most merchant outlets, give us freedom from carrying loads of cash, and mini-loans virtually available to us at any time are always welcome.

However, there's a fine print to it. ALL of these cards come with a credit period and a credit limit. Isn't too hard to guess what these are. But from the company's point-of-view, these are interpreted slightly differently. They claim their credit limit is of 45 days. But wait. Their systems are fully computerised. No matter how well a computer could fly and land an aeroplane without human interference, for credit companies, they're inherently dumb. They're deliberately kept dumb (is that to exploit us consumers? Dunno). The billing cycles of credit companies are fixed. Which is why the credit period that we get is (usually) calculated from the 1st of every month. This is what separates automated systems from the human way of thinking.

Come to think of the gift example above, didn't you buy that gift on the 29th of the month? And then guessing that the period that you'll get is supposedly the 14th day, two months hence? Hey! Its in this month's bill! Where is my credit period? You said 45 days, innit?

Well, then lets get things straight. We'll start from the company's view: You buy something on the 2nd day of the month. The company wouldn't print the bill until the 30th. That gives you a fair credit period of 28 days. On this bill, it is mentioned that the due date for payment is the 15th of the next month. Add 15 days to your credit period. You pay by cheque, which the bank takes two days for 'debiting your account'. Now add 'em up: 28+15+2 = Voila!

So on a time line, this edge-to-edge calculation will let you enjoy the actual credit period. Feel cheated? Well, that's the way it works, especially when you don't want to squint for the fine print. Now its time to turn the tables. Go ahead and buy your stuff in the first week - to enjoy their full free credit period. Reduce your burdens and get-it-all.

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