Behavioural biases that damage your investments!
In matters of investment, the sooner you acknowledge your mistakes, the sooner you'll find help in getting out of the soup. To break free from biases, the first step should be to identify those biases, says, Balwant Jain, Tax and Investment Expert.
One of the critical aspects of financial planning is to buy a term insurance policy as it offers a family a cushion to adjust to the financial consequences of early death. Most importantly, it helps a family in meeting regular expenses, not leaving them at the mercy of friends and relatives. Having said that, one of the biggest liabilities could be a home loan. Therefore, it is important that your home loan has insurance cover. There are two options in this case: Either you buy a separate term insurance plan from any insurer or you can opt for a loan protection plan, which is offered by banks when you take a home loan.
Standard Term Insurance Plan
In the case of a standard term insurance plan your sum assured remains the same throughout the tenure of the policy. You can buy a standard term insurance plan on your own from an insurance company based on the need analysis method. Here apart from your future expenses you also need to factor in loans, as it would help the family in repayment of outstanding balances in case of any mishap. Having said that, the actual cover size should be bigger than the home loan amount as you also need to cover other expenses such as monthly expenses, child education and retirement corpus.
Loan Protection Plan
Under loan protection plans, the sum assured reduces with the loan amount. Therefore, they are cheaper than standard term protection plans. Moreover, the tenure of the policy is the same as the loan. Experts say that if the motive is to cover a home loan, then one should buy loan protection plans that are offered along with home loans as the sum assured reduces in tune with the outstanding loan. Most of the banks offer you a loan protection plan along with a home loan. But if you already have term insurance cover of a sufficient amount then you can opt-out of the scheme.
Comprehensive Coverage
Apart from term insurance, you should also have a home insurance policy for covering any material damage to your house. Again you can either buy it separately or along with your home loan. But remember, most home insurance policies bought at the time of taking on a home loan cover the building structure only during basic perils such as fire and floods. It is not a comprehensive policy, which also covers contents such as household articles and electrical appliances. Only a comprehensive home insurance product covers both structure and contents. The right way to buy home insurance is to buy a policy that covers both the structure and its content.