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6 compelling reasons to start investing for retirement now

Did you know that 86% of Indians above the age of 50 years regretted not starting early to save for their retirement, according to the India Retirement Index Study (IRIS) conducted by Kantar for Max Life Insurance Company?

If you don’t want to regret it, then it is essential to start saving and investing for your retirement at the earliest.

However, we understand that it is easier said than done. Moreover, when you are young, retirement is the last thing on your mind.

In this article, we will look at some reasons why we should invest for our retirement as soon as possible.

Benefit from the compounding effect

When you start investing for your retirement, you can get the full benefits of the power of compounding. Compound interest is nothing but the interest you get on the interest you earned on your initial amount from previous periods.

Time is the most crucial element to gain the complete benefit of compounding. This is because the longer you stay invested, the higher the impact of compound interest on your initial investment will be. So even if you invested a higher amount at a later stage, you might still accumulate a lower amount than a person who started investing earlier than you, even if it was a smaller amount.

For instance, let us consider the example of two friends, Priya and Riya. Both of them started working on the same day. However, Priya started to invest from the first month with ₹5000 per month, but Riya started investing after 10 years with ₹ 10,000 per month.

So, after 20 years from their first paycheck, Priya and Riya had invested ₹ 12 lakhs each.

However, if we consider an annual average return rate of 12%, then Priya would have accumulated ₹ 50 lakhs while Riya’s investment value would be ₹23.23 lakhs. That is almost less than half of Priya’s accumulated amount.

That’s the power of compound interest.

Fewer obligations

When you are younger, you have fewer obligations. During this time, you might not have a dependent spouse, children, or elderly parents who are financially dependent on you. If you are not yet a parent, you might not have to think about the children’s education and other related expenses. As a result, you can save a higher amount towards your retirement.

In your 40s, although your earnings power is higher than in your 20s, you will have many responsibilities, such as paying home loan EMI, children’s educational expenses and saving money for future education. So, the percentage of your income you can earmark your retirement will decrease.

Take higher risk and reap higher rewards

When you are young, you can take higher risks. This is because investing in risky asset classes such as equities requires a longer time frame. Equity investments have the potential to give higher returns than other asset classes over the long term. When you start investing early for retirement, you have the bandwidth to take higher risks and invest in equities, which can help you reap higher returns over the long term. As we have already seen the power of compounding, you can accumulate a larger retirement corpus by investing in equities for the long term.

Read: How to invest in mutual funds for your retirement

Inflation

Inflation is a silent killer that diminishes our purchasing power. The amount of items and services that we can buy with a certain amount today will not remain the same after 10 or 20 years. You will need more money to buy the same amount of items and services after a few years.

For instance, the value of Rs. 1 lakh will go down to ₹29,000 in 20 years, even considering an average inflation rate of 6%.

So, assuming that your current monthly expense is ₹ 25,000, then you will need ₹33,700 in five years and ₹.2.57 lakhs in 4 years to buy the same amount of goods and services.

The only way to ensure that your savings don’t outrun your expenses during your retirement life is to start investing early and ensure that your investments are growing at a higher rate than inflation. Again, equity as an asset class has historically given higher returns than the inflation rate.

Increase in life expectancy

According to UN Estimates, India’s expectancy will hit 81.96 in 2100. To put this into context, India’s life expectancy in 2022 was 70.19, and it was 35.21 in 1950.

This means the average number of years a person will live after retirement will increase. As a result, you will need more money to live out your post-retired life.

For instance, if you consider your life expectancy to be 80. In this scenario, you will need Rs.2.25 crores for 20 years post-retirement. We are considering a present earnings of ₹ 40,000, a basic monthly expense of ₹ 25,000, and the present age as 35.

However, when the life expectancy goes up to 90 years, you need ₹3.17 crores to fund your expenses after retirement. It is important to note that we are considering that your money after your retirement will grow at 7.5% every year. We are assuming an inflation rate of 6%.

So, we have seen that you will need to accumulate more money with increased life expectancy.

Increase in healthcare costs

Did you know that the medical inflation in India is the highest in Asia? India’s medical inflation was recorded at 14% in 2021. Medical inflation includes the cost of hospitalisation, medicines, consultation charges, and lab tests. This means you have to pay more to get healthcare-related products and services.

We are all aware that medical expenses are most likely to form a bulk of monthly expenses after retirement. Hence, even if your other expenses go down, expenses regarding medicines and treatments might go up. As a result, you need to start investing early to take care of your post-retirement expenses.

Conclusion

In this current scenario, retirement is a non-negotiable financial goal. With the rising costs and the changing scenarios, it has become imperative to start investing early for retirement.

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You can revive your lapsed LIC policy at low cost

A life insurance policy offers continued financial security to you and your family, provided you, as a policyholder, pay the premium regularly. If the premium dues are left unpaid over a long period, the policy may lapse and you may lose all or part of its benefit. To offer some respite to life insurance policyholders, LIC recently launched a revival campaign to ensure benefits of the policy continue. The revival campaign encourages people to renew their policy by offering concessions on late fees. So, if you have a policy with LIC, then you can revive individual policies till October 22, 2021. Do note it is applicable for eligible plans subject to certain terms and conditions.

What is lapsed policy

A policy is said to have lapsed if the premium dues are not paid even after the grace period (30 days for yearly, half-yearly and quarterly premium payment and 15 days for monthly premium payment).

In case of death of the policyholder when a policy has lapsed, if the policy has acquired surrender value, then claims will be settled to that extent by the insurer. If not, the policy loses all its benefits and no claims would be settled.

Usually, insurers allow you to revive your life policies within five years along with a penalty. Note that the penalty will vary with each insurer. Usually, LIC charges 9.5 per cent per annum as late fee penalty on premium dues. So, under normal times, a policyholder will have to pay total premiums due plus the penalty (interest) amount to reinstate the policy benefits.

Your policy document will state whether your policy is eligible for revival if it has lapsed. Beyond five years, insurers may allow for policy revival on a case-to-case basis.

Which policies can be revived under LIC campaign

Under the special concession offer, LIC is offering the benefit of reviving lapsed policies for plans that are other than term assurance and high risk plans. This also depends on the total premium paid.

There are no special concessions on the health/medical requirements that you as a policyholder have to meet.

Eligible health and micro-insurance plans also qualify for the concession in late fees.

Time period

Under the special campaign, policies of specific eligible plans can be revived within 5 years from the date of first unpaid premium subject to certain terms and conditions.

Late fee discount

If the total receivable premium for the lapsed policy is up to Rs 1 lakh, then the late concession is Rs 2000.

For total receivable premium of Rs 1.01 lakh to Rs 3 lakh, the late fee concession is Rs 2500.

For total receivable premium of over Rs 3 lakh, maximum concession allowed is Rs 3,000.

How to revive policy

LIC policyholders can revive the policy with the insurer directly by paying the interest charges for late payment.

With LIC policies, you can contact the agents or visit the branch to complete the revival process.

Why such a campaign

According to LIC, the lapsed policy offer will help policyholders who could not pay premiums on time because of unavoidable circumstances.

This should be seen in the backdrop of the Covid-19 pandemic and its after-effects on public life and incomes.

How to port health insurance policy

Many people get health insurance for themselves and their family as it can help during contingencies. However, most do not thoroughly look at the benefits and other terms of the policy before getting a policy. This might mean that for most policyholders, the insurance cover might be either redundant or insufficient to meet their needs. There might be policies that donâ€™t cover the expenses that policyholders might need. There might be lack of transparency, ambiguous terms and delayed claim process for the health insurance policy. The cashless claim process for the health insurance policy needs to be seamless.

If you are unhappy with the services given by your insurance provider or the terms of your existing health insurance policy, you can move on to another health insurance plan, or you can even go for health insurance provided by another insurance provider. You donâ€™t need to discontinue your existing health insurance policy. You can just port the policy. Here are all the details you need to know.

The Indian insurance industryâ€™s regulatory authority, the Insurance Regulatory and Development Authority of India or IRDAI plays its part by helping disgruntled policyholders port their health insurance policy to another insurance provider.

What is health insurance porting?

Porting or switching to another health insurance policy is a way to start afresh without having to lose the money already invested or the benefits of your existing insurance policy. When you port your insurance plan, you are essentially transferring your existing cover to another provider. You may go for a new insurance policy provided by your present insurance company or by another insurance provider.

When you cancel the existing health insurance policy, you may lose the benefits of the policy such as waiting time already covered for pre-existing diseases or restoration benefits that you already have. When you port a health insurance policy, you donâ€™t lose out on certain benefits that you have already earned under your existing policy.

When to port your health insurance policy?

Here are some of the key situations when you should consider porting your health insurance policy.

When your present insurance provider is offering really bad services. This is especially if your claims arenâ€™t settled in an easy and timely way
If your financial situation has changed, the number of dependents in your family have increased or the present plan doesnâ€™t suit your needs, you might need a better health insurance policy
When the premiums, discounts and other benefits offered by a health insurance policy is better than your present policy, then, you can consider porting your health insurance policy.

How to port your health insurance policy?

You can port your health insurance policy when it is time to renew the policy. This way there wonâ€™t be any gaps in your health insurance coverage. However, there are times when porting may require more processing time, so a monthâ€™s grace period is given for porting your policy. If you think that the coverage might be discontinued by your present insurance provider, you can request them to extend your coverage till the porting is done. For this, you can make premium payments on a pro-rata basis for the period of extended coverage.

To port your health insurance policy, you need to inform your present health insurance company in writing. You need to clearly state the name of the new health insurance policy or company you will be moving to. This needs to be done at least 45 days before the renewal date for your present plan.

Once you fill the portability form, your new insurance provider will contact your present provider for details such as your insurance claims history. After all the information is verified by the new insurance provider and they are right for the new policyâ€™s terms and conditions, the insurance company will provide you the health insurance policy.

Note that you can port between individual and family floater policies. The kind of insurance plan you own doesnâ€™t matter. You can port from one policy to another if the policies cover the required needs. It doesnâ€™t matter whether your present policy is with a private insurance provider, standalone provider or general insurance provider. You can port from one insurance provider to another.

Always remember that the end-goal of getting a health insurance policy is to keep yourself protected against financial adversities. So, go for the plan and provider that is right for your family.

How to choose a home insurance policy

Less than 1% of homes in India are insured. Home insurance isnâ€™t given as much importance as life insurance. So, what is a home insurance policy? Home insurance policy is a kind of property insurance that covers losses and damages to an individual’s house and assets in the house. Most general insurance firms provide home insurance covers in the market.

You can find various kinds of home insurance policies to protect your property and its contents. These may include cover for household goods, furniture and gadgets. Note that most plans provide coverage against fire, theft and burglary. Most policies cover damages due to natural calamities such as storms and rain. The premium for a sum insured of Rs. 1 crore is usually priced at only Rs. 5,000 to Rs. 10,000. There are even policies that offer home insurance for less than Rs. 100 when the sum assured is Rs. 3 lakh.

If you didnâ€™t know home insurance products not only offer cover against damage to property, they cover accidental damage to smart phones, laptops, digital/ video cameras. Need to know how to choose home insurance? You need to understand the primary and most popular kinds of home insurance policies offered in India and choose one that suits your requirements.

Standard fire and perils policy

This is the standard home insurance policy offered by all popular insurance companies. As the name of the policy suggests, it provides protection against fire outbreak and other perils. This home insurance policy can be purchased by house owners for their own house and also by tenants who are residing in a rented house. How is the sum assured calculated for this insurance policy? The cost of reconstruction of the building (excluding the value of the land) will be paid as sum assured by the insurance provider. A standard fire and perils policy will provide protection for the insured home against damages caused due to the following reasons.

Damages to property caused by natural calamities such as fire, lightning, bush fire, forest fire, volcanic eruptions, earthquakes, storms, floods, etc.
Damages to property with malicious intent
Damages to property caused by third party vehicles including train
Damages to property caused by your own vehicle (even if it is not included in the policy)
Damages caused due to explosion/implosion made during man-made anti-social activities such as strikes, riots, etc.
Damages caused by rockslide or landslide
Damage caused due to bursting or/and overflowing of water tanks, pipes, etc.
Damages to the property due to missile testing operations
Damages caused due to leakage of water from automatic sprinkler installations

Building insurance

This is a kind of home insurance policy that provides protection for damages to the structure of your house from different kinds of risks. In addition to this, the policy will also protect all of the permanent fixtures within the house. This will include the fittings in your kitchen and bathroom, the ceiling/roof of the insured house, etc. In case the house has other buildings such as garages, sheds or an outdoor room/house, those buildings will also be covered under the policy.

Contents insurance

Not all home insurance policies cover damages to your property and the contents in your property. If you need protection for the appliances and other things in your house, you need to have a contents protection in the home insurance policy. Contents insurance is a kind of home insurance policy that protects the things such as appliances inside your house from damages and loss due to theft, fire, flood and other such mishaps. Most of the policies cover things including television, refrigerator, your documents, portable equipment, jewellery, etc.

Public liability home insurance

If you have invited guests to your home, public liability home insurance will protect them from damage to their things inside your insured house.

Burglary and theft

If there is any burglary or theft in the insured house and any valuable contents are stolen or damaged, the burglary and theft home insurance policy will protect you.

Home insurance for owners

As an owner of a house, you will be responsible for the maintenance and upkeep of the property whether it is an apartment or independent house. You can use a standard buildings home insurance policy for protecting your home if you are renting it out.

Home insurance for tenants

Tenants who rent a house bring their own things such as furniture, television, refrigerator, etc. They will not need building protection as they donâ€™t own the house. If you are a tenant, you can buy a contents home insurance policy. This kind of insurance is a must have for every tenant. It will help you against damages to the things in the house.

Personal accident

This cover can be included in your home insurance policy for you and your family. A compensation is provided by the insurance company in case of permanent disability or death of the insured person due to accidental or physical injury.

What is not covered under home insurance

Damages to unoccupied property (if it has remained unoccupied for long time)
Money in the form of cash, antiques and collectibles
Damages to property due to war
Damages to property due to wear and tear

For getting home insurance, you need to fill a proposal form. You have to declare the building and contents of the building. You can choose from some of the best home insurance policies in India as they are available online too.

Do you need a personal accident insurance policy?

Since 2009, India has been one of the top countries with high road accidents. These accidents have led to death, disability or injuries to the parties involved. Only those who have a personal accident policy can get compensated for the losses after the accident. A personal accident insurance policy takes care of expenses for disability and injuries and compensates for income loss to the policyholder. There are many benefits you can get from personal accident insurance. However, before that you need to understand what personal accident insurance is.

What is personal accident insurance?

Personal accident insurance is an insurance policy that reimburses your medical costs, provides compensation in case of disability or death caused by accidents. These are expenses which your life insurance or health insurance may not compensate. Accidents can cause partial or total disability which might lead to loss of job. A personal accident insurance policy can compensate for this.

What are the benefits of personal accident insurance?

Disability covered â€“ A personal accident insurance policy coverstemporary or permanent disability that may occur in the aftermath of an accident. Compensation can be claimed for various kinds of disability. For instance, loss of both hands or feet, one hand or one foot, or an eye is covered under the policy. Even loss of hearing in one ear is compensated by the insurance company.

Major hospital bills included â€“ The personal accident policy takes care of the hospital bills and medical treatment that you might need after the accident. The policy covers other expenses such as repatriation charges, and ambulance charges.

Home, vehicle alterations â€“ If the policyholder is wheelchair-bound after the accident and needs to modify their vehicle for usage, they can claim it under the personal accident insurance policy. Here, even alterations to the house will be covered. For instance, if there is a need to construct a ramp for the wheelchair, then the expenses are compensated by the personal accident policy. So, you could ask the insurer to compensate you for those changes.

Death of the policyholder â€“ The personal accident insurance policy disburses compensation to the family if the policyholder dies after an accident. If the policyholder has young children, the personal accident policy will take care of their education. Most of the insurance companies pay 10% of the sum assured or the actual tuition fee charged by the education institution, whichever is lower.

Family transportation – If the policyholder is hospitalised in a place that is more than 150 kms of his/her residence after the accident, the insurance company will compensate the transportation costs that are incurred by the family to meet the policyholder.

Terrorism Act â€“ Some of the personal accident insurance policies cover any injuries caused by terrorists to the policyholder.

What are the eligibility criteria for personal accident insurance?

Anyone over 18 years of age is eligible to buy a personal accident insurance policy. However, you can take a policy for children as dependents. The maximum entry age for the policy is usually 65 years. However, this may vary for different insurance providers.

What is the personal accident insurance claim process?

After the accident, the policyholder needs to immediately inform the customer care of the insurance company. This can be done using the website of the insurance provider or the customer care number provided. You need to give the details of the personal accident policy. You can download the claim form and get someone to download it and fill the form. Other documents will be needed along with the claim form based on whether there has been death, disability or injuries.

Once you submit all the required documents, the insurance company will conduct a scrutiny to understand whether the policyholderâ€™s claim is genuine. If the claim is approved, the insurance company will transfer the payment to your bank account. If the claim is rejected, you can provide additional supporting details to make sure that the company accepts the claim.

What are the exclusions to personal accident insurance?

While some of the exclusions may differ according to the plans provided by different insurance companies, the most common exclusions are listed here.

Pre-existing disability or injuries
Accidents caused because of intoxication (alcohol, drugs etc.)
Intentional suicide attempt
Accidents because of participation in unsafe and dangerous sports
Accidents that involved committing criminal act
Accidents that are caused by mental disorder
Childbirth or pregnancy
Accidents treated using non-allopathic treatments

The premium for personal accident policies is usually not very high and can be purchased easily from general insurance companies.

Need help choosing a policy? Get in touch with experts at Wealthzi.com.

What is co-pay in insurance?

The basic objective behind health insurance is that you donâ€™t need to pay high medical bills if there is an illness as the policy will pay them. However, if you have savings set aside for contingencies and want health insurance to supplement the savings, you can choose the co-pay option provided by your insurer. This will help you get health cover for less money. Here are the details you need.

What is co-pay in health insurance?

When yoau share the cost of your medical bills with your insurance provider, it is called co-payment. The percentage that needs to be paid by you will be decided by the provider and is a co-payment deduction. This varies between insurance companies. Most companies ask 10%-30% to be paid by you under co-payment.

How does co-pay work?

Letâ€™s say Mr. R has a health insurance plan for Rs. 5 lakhs with a 30 per cent co-payment clause. He avails medical treatment. His total hospitalization costs come to nearly Rs. 2.5 lakhs. In this case, R will need to pay Rs. 75,000 (30 percent of his bill) out of his own pocket, while the rest Rs 1.75 lakh will be paid by the insurance provider.

Why do insurance companies provide co-pay?

Co-pay helps insurance providers save money and reduces risks of higher payments for them because a part of the payment is made by the policyholder. Another advantage for insurance providers is that there will be no unnecessary or false claims. Generally, people who have a health plan opt for luxury facilities and expensive hospitals even when they don’t really need them. When the customer has to pay some money for the costs, they will only opt for services that are necessary. So, insurers are providing the co-pay clause to lower the misuse of health insurance and also to encourage customers to make only necessary claims.

How does co-pay impact the premium?

The higher the percentage of the co-pay element, the lesser will be your health insurance premium. It is because the risk gets distributed between both the parties â€“ insured and insurer.

When will co-pay be applicable?

Most of the insurance companies apply co-pay in different ways. Here are types of co-pay or the common ways where co-pay might be needed.

Non-network hospital

Most health insurance providers insist on the co-pay feature in case of medical treatment outside network hospitals. This is because the costs might be higher for the insurer.

Hospitalisation in different city

Most health plan companies insist on the co-pay clause if the customer is hospitalised in metro cities as the hospitalisation costs in metro cities will be much higher than that in smaller cities. So, if a policy was purchased in a tier II city and a claim is made in tier I city, then a co-pay clause might be applicable. However, claims from policies issued in metros may not have any co-pay element.

Pre-existing disease

Generally, insurance companies cover pre-existing diseases after the waiting period. However, many insurers offer to cover these costs only after applying the co-payment feature as these might be recurring expenses.

Treatment in expensive hospital

Even if a customer is taking medical treatment at a network hospital, insurance companies categorise some hospitals as highly expensive. This is because of the expensive treatment costs and higher room rents. So, treatments in all such hospitals will have higher co-pay.

Age-related co-pay

Since senior citizens might incur higher medical costs, most of the insurance companies apply the co-pay clause to senior citizens. There is a chance of more frequent claims by elderly policyholders. To mitigate this risk, insurance providers apply the co-pay clause after a certain age limit.

Should you choose the co-pay feature?

If you are young, physically fit with no history of serious illnesses in the family, you can save quite a bit of money by opting for the co-pay element. Senior citizens are advised to choose the co-pay feature in their health insurance policy because most insurance companies might not provide them with a health plan as their age goes up.

However, note that co-pay is not only one criterion for choosing a health plan. The ease of the claim settlement, settlement ratio, features of the plan, exclusions etc. will need to be considered before you buy a plan of your need.

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9 reasons why your car insurance claims could get rejected

If you own a car, you will need to purchase car insurance for it. Car insurance is mandatory in India and you can purchase it online or offline. A car insurance policy will help you cover the expenses in case of car damage or injury to other parties because of accidents. The benefits you receive will depend on whether you purchase mandatory third-party car insurance or comprehensive car insurance. The latter will provide protection from most of the damages to your car.

Most car insurance policy will protect you from losses arising out of:

Â· Natural calamities such as floods, cyclones, etc.

Â· Damages from a car accident involving only your car

Â· Damages from an accident with any third-party which may lead to bodily injury or car damage

Â· Theft of your car

Â· Any accidental fire in your car

Â· Accidents that lead to death or loss of life

When you make a claim for a damage to your car and you donâ€™t get the money, it can be very frustrating. To avoid such a situation, you should understand the reasons for car insurance claims rejection. Here are some of the popular reasons why car insurance claims are rejected.

1. Driver related problems

Driving under the influence of alcohol or driving without a proper legal driving license are the two most common reasons why motor insurance claims get rejected. Both of them are against the law and, hence, your claim cannot be processed by the insurance company. In such cases, the insurance company has the right to reject your claim at the outset.

2. Non-renewal of policy

You will need to renew your car insurance policy every year before the expiry of the policy. If the tenure of your policy is over, then, you cannot make claims under the policy. If you make a claim to your insurance provider with an expired policy your claim will get rejected.

3. Delay in reporting the accident

If your car has been involved in an accident, you will need to report it to your insurance provider as soon as possible. There is a deadline before which you should intimate the insurance company about the accident and associated damages. If you take too long to report the incident or make a claim, your claim might get rejected. You need to provide your insurance company with the right documentation within the provided time-frame. If your car has been damaged in an accident, remember to first report it to your insurance company before you give it for repairs.

4. Using a modified car without intimation

When you take a car insurance policy, you will need to make declarations as to the specifications of your car such as the engine capacity, alloy wheels, etc. The declaration will help the insurance company understand what will need to be included in the policy. Any car insurance policy automatically covers the components declared in the previous policy when it is renewed.

Now, letâ€™s say you got an upgrade in the carâ€™s engine and did not inform your insurance company about it. If you meet with an accident, your claim can get rejected.

So, if you want the insurance company to cover additional accessories in your car insurance policy, you must inform your insurer about it. Your insurance company will provide protection for these components after checking your car. Note that you might need to pay an additional premium.

5. Fraudulent claim

Reporting of wrong facts or making claims that are false can lead to rejection of your claims. You need to make sure that you provide the true facts on the accident or damage to your car. This is because the insurance company will check the damages to the car before they pay the money. Any false information can lead to claim rejections.

6. Violation of policy conditions

Every car insurance policy comes with its own terms and conditions. You need to follow the policy terms at all times. For instance, if you insure your car as a private vehicle and you use it for commercial purposes, your insurance claims will get rejected.

7. Not owning the car that you drive

To make claims for damages on a car, you will need to own the car. If you are driving a car owned by someone else that has a policy in your name, your claim will get rejected because there was no ownership. For instance, if the car is in your spouseâ€™s name, the policy cannot be in your name. It has to be in your spouseâ€™s name.

8. Intentional damage

When you purposely break or damage your car, the insurance company will not cover it.

9. Non-Disclosure of facts

Hiding facts from the insurance company is considered bad. If the insurance company knows that you hid facts regarding the accident or damage to your car, it can reject your claims. For instance, if you do not tell the insurer that you were drunk while driving, your claim will be rejected.

Other reasons for car insurance rejection include driving out of specified geographical limits and wear and tear of the car. This means that if the accident took place outside the geographical limits defined by the insurance company, the claim will get rejected. Your car insurance policy will not protect you against any mishap outside of country boundaries. Claims for damages due to regular wear and tear of the car such as peeling of paint, degradation of tires, etc. will be rejected.

Making a claim on your car insurance policy is easy. However, you need to take into account the above-mentioned reasons so that your claim is approved by the insurance company.

All you wanted to know about Indian Railway Finance Corporation (IRFC) IPO

The Rs 4600-crore initial public offer (IPO) of public sector NBFC Indian Railway Finance Corporation (IRFC) is hitting the markets next week. IRFC IPO will be the first by a non-banking financial company (NBFC) in PSU segment. Here is all you wanted to know about this awaited share-sale.

What is IRFC

Indian Railway Finance Corporation has its registered office in New Delhi. The company has 26 permanent employees. IRFC is the dedicated market borrowing arm of the Indian Railways. It is wholly-owned by the Government and registered with the RBI as an NBFC.

Its primary business is financing the acquisition of Rolling Stock Assets and Project Assets of the Indian Railways and lending to other entities under the Ministry of Railways.

For fiscal 2021, the target to be borrowed from IRFC is Rs 625.67 billion. For FY20, IRFC posted a profit of Rs 3,192 crore and earnings per share was Rs 3.40. The company has generated strong revenue growth in last four years.

When does the IPO open

The IPO will open on January 18 and close on January 20.

What is the price band

The price band for the IPO will be Rs 25-26 per share.

What are IPO details

The issue size is for up to 178.20 crore shares, out of which 118.8 crore shares is the fresh issue, and 59.40 crore shares is under offer for sale. The offer for sale proceeds will go the Government of India. The net proceeds of the fresh issue are proposed to be utilised towards augmenting IRFC equity capital base to meet future capital requirements arising out of growth in business, and general corporate purposes. The face value of each share is Rs 10.

As per a tweet by Secretary, Department of Investment and Public Asset Management, “IRFC coming up for listing with a Rs 4600 crore+ issue in a price band of Rs 25-26 per share. Anchor book on Jan 15 and the Main book from Jan 18-20.”

Pre-IPO, the Government of India controlled 100% of the company. Upon completion of the issue, the GoI will control approximately 86.36% of IRFC paid-up equity share capital.

What is the minimum IPO investment

The lot size is 575 shares. So, at the upper band of Rs 26 per share, the minimum IPO investment for IRFC will be Rs 14,950.

What is the IPO listing date

IPO shares will be listed on bourses on Jan. 28-29 (tentative).

How does IRFC earn money

The vast majority of IRFC revenue is generated from leasing Rolling Stock Assets to the Indian Railways. Lease income, interest on loans and pre commencement lease interest income together represented 99.75% and 99.87% of IRFC total revenue from operations in Fiscal 2020 and in the six months ended September 30, 2020, respectively.

The business and revenues are substantially dependent on the policies of the MoR (Railways Ministry) and operations of the Indian Railways. Therefore, the overall prospects of IRFC business are closely tied to the relationship with the MoR.

It operates on a cost-plus based model. In Fiscal 2020, IRFC was entitled to a margin of 40 bps over the weighted average cost of incremental borrowing for financing Rolling Stock Assets. In Fiscal 2018, the margin for financing Rolling Stock Assets was reduced to 30 bps from 50 bps in Fiscal 2017.

How does IRFC raise money

IRFC funding requirements historically have been met through various sources including from taxable and tax-free bonds in India, term loans from banks/ financial institutions, external commercial borrowings including bonds and syndicated loans, internal accruals, asset securitization and lease financing. Its Cost of Borrowings was 6.82%, 7.09% and 7.27% in Fiscals 2018, 2019 and 2020, respectively, and 3.55% (non-annualized) in the six months ended September 30, 2020.

Do note IRFC is a non-deposit taking NBFC, and so has restricted access to funds in comparison to banks and deposit taking NBFCs. IRFC has in the past raised money from LIC.

What are the company’s debt ratings

IRFC has been accorded ratings of â€˜AAAâ€™ by CRISIL, â€˜ICRA (AAA)â€™ by ICRA and â€˜CARE AAAâ€™ by CARE each with respect to its debt programme.

International credit rating agencies such as Moodyâ€™s have rated IRFC Baa3 (Negative) while Fitch, Standard & Poorâ€™s and Japan Credit Rating Agency have rated BBB-â€˜Negativeâ€™, BBB- (Stable) and BBB+ (Stable).

What is the valuation of IRFC shares sold in IPO

NBFCs are usually valued based on Return on average Net Worth (RoNW). The six months ended September 2020 RoNW % is 6.09, which if annualized becomes 12.18%. The RoNW for FY20 was 11.57%.

There are no listed peers to IRFC business at the moment.

From Net Asset Value perspective, IRFC NAV is Rs 26.67 per share as on Sept. 30, 2020. So, IPO stock price is at a small discount to NAV.

Who are BRLMs to this IPO

The book running lead managers to the issue are DAM Capital Advisors Limited (formerly known as IDFC Securities Limited), HSBC Securities and Capital Markets (India) Private Limited, ICICI Securities Limited and SBI Capital Markets Limited.

5 Best Term Insurance Policies to Consider in 2021

A term insurance plan is a Life Insurance policy taken by an individual on his or her own life. The policy will come with a specific tenure and chosen sum assured. If the policyholder passes away during the term of the policy, the sum assured will be paid by the insurance company to the family of the policyholder.

How does term insurance work?

You need to pick the best term insurance. Then, decide on the policy term and the coverage amount that you will need. You should use your salary, monthly expenses, liabilities and other details to choose the right coverage amount. The premium for term insurance plan will be calculated based on multiple factors such as your health, age, smoking habits, coverage amount, term etc. This premium usually remains constant throughout the term of the policy.

Most insurance companies provide you with the options to pay the premium as a one-time payment or at regular intervals. Most people opt to make premium payments annually or on a monthly basis. You can also decide how you want to receive the sum assured.

Once the policy is bought, in case of the policyholderâ€™s demise during the term, the insurance company pays the sum assured to the beneficiary named in the policy.

If the policyholder is alive at the end of the term, no payments will be made and the insurance cover will cease to exist. However, if the policy comes with survival benefits, then the policyholder will get a lump sum amount at the end of the policy term.

Once the policy term is over, to continue the policy, the policyholder can renew the policy.

Usually, insurance companies allow policyholders to renew policies are till the policyholder reaches the maximum age as provided by the insurance company. Note that for renewals, the insurance company will recalculate the premium.

Benefits of term insurance plans

Term insurance plans have the following benefits which you should know.

Term plans come with very low premiums because the policy covers only the risk of death
There is usually no limit on the sum assured that you can avail for the policy. You can opt for as much sum assured as your family will need. This makes for better financial security
The term of the plan can be up to 30 or 35 years. This makes sure that you get coverage even after retirement
Several riders are available under term insurance plans. You can use them to increase the scope of your policy cover

Cons of term insurance plans

Here are some of the disadvantages that come with term insurance plans

There is no paid-up value or surrender value for term insurance plans. So, once you stop paying the premiums, the policy will lapse
There is no bonus under term insurance plans. On the death of the policyholder, only the sum assured is paid

5 best term insurance plans in India 2021

If you are looking for the best term insurance policy, here are the most popular ones that you can consider.

SBI Life eShield Plan

The unique feature of this plan is that it offers two benefit structures. One is the Level Cover benefit and the other is the increasing cover benefit. Accelerated terminal Illness benefit is available as an inbuilt benefit for both the structures. So, you will get protection against terminal illness.

Under the Level Cover benefit, the sum assured will remain the same throughout the policy term. Under Increasing Cover benefit, the sum assured automatically increases by the simple rate of 10% at the end of every 5th policy year.

Under both the structures, during the policy term, on unfortunate death or diagnosis of terminal Illness, whichever is earlier, the â€˜Sum Assured on Deathâ€™ will be paid.

The â€œSum assured on Deathâ€ will be higher of 10 times the Annualized premium, or 105% of the total premiums received up to the date of death, or the absolute amount assured to be paid on death. For Increasing Cover benefit the absolute amount will be the sum assured increased and applicable for that year.

LIC e-Term Plan

LICâ€™s e-Term is an online term insurance policy which provides financial protection to the policyholderâ€™s family in case of his/her unfortunate demise. This plan will be available online only and no intermediaries will be involved. To purchase the plan, you need to log on to the website www.licindia.in.

Under this plan, there are two categories of premium rates. One is the Aggregate lives premium and the other is the Non-smoker lives premium. For sum assured that is up to Rs. 49 lakhs, the premium under the Aggregate category will apply. For sum assured that is more than Rs. 50 lakhs, there is an option to choose differential premium rate that is available for the non-smoker category.

The minimum sum assured for the plan will be Rs. 25 lakhs for Aggregate category and Rs. 50 lakhs for Non-smoker category. There is no limit to the maximum sum assured. The minimum age for the policy is 18 years while the maximum age is 60 years. The maximum cover ceasing age will be 75 years.

ICICI iProtect Smart Plan

ICICI Pru iProtect Smart is a comprehensive and flexible term insurance plan. You can customise your own plan by choosing from a range of benefits. The plan provides options to provide financial protection against 34 critical illnesses and provide higher cover against accidental death.

The minimum sum assured for the plan will depend on the premium and the plan options chosen. The minimum age for the policy is 18 years while the maximum age is 60 years. The maximum cover ceasing age will be 85 years. The plan offers single, yearly, half yearly and monthly premium options.

Women can get lower premium under the plan and the premium will be waived if the policyholder has permanent disability such as incompetency to write. In the event of death, the beneficiaries will be paid lumpsum, regular income, increasing income or lumpsum with income as chosen by the policyholder when they purchased the policy.

Max Life Online Term Plan

The Max Life Online Term Plan offers a high life cover at a relatively low premium. The sum assured for the pal starts from Rs. 25 lakhs and goes up to Rs. 100 crores. The entire sum assured will be paid to the dependants in the unfortunate event of death.

This is an online term insurance plan. You can choose from a basic life cover, a life cover + monthly income and a life cover + increasing monthly income. The monthly income will increase at the rate of 10% every year.

You can add the Max Life Comprehensive Accident Death Benefit rider to your plan. In the event of death or permanent disability caused by an accident, this rider will be activated. If you go for the Max Life Waiver of Premium Plus rider, your future premiums will be waived in the event of dismemberment or critical illness. You will need to pay for the riders.

The plan for those who are between the age of 18 and 60 years. The cover can be extended till you are 85 years of age. The tenure for the cover will be between 10 and 50 years. The premium payment modes offered by the insurance company are annual, semi-annual, quarterly, and monthly. The premiums will be lower for non-smokers.

Aegon Life iTerm Plan

Aegon Life iTerm Insurance Plan is a comprehensive life protection plan. The unique feature of the plan is that it provides the policyholders with an option of life coverageÂ till the age of 100 years. The plan provides add-on flexibility to choose from three different plans based on your protection needs.Â

The best thing about this plan is that you can get an additional lumpsum pay out on diagnosis of 36 Critical Illnesses. You can use this option up to age 80 years. The critical illnesses include cancer, heart attack and kidney failure. You can choose this using the Aegon Life CI Care Rider. Aegon Life iTerm insurance plan also covers corona virus death claims. You get 100% pay out on terminal illness.

The InstaCover benefit offered by the insurance company makes sure that your policy is valid from the day you submit your complete application. Under the policy, you can choose between the life cover increasing by 5% every year without increase in premium and Life cover plus regular monthly income starting from 60 years of age till maturity.

Under the â€˜It pays to Quit Smokingâ€™ benefit, the insurance company provides the option to smokers to quit smoking. This will help them reduce their policy premium from the 2nd year onwards.

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What is IRFC

When does the IPO open

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What are IPO details

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How does IRFC earn money

How does IRFC raise money

What are the company’s debt ratings

What is the valuation of IRFC shares sold in IPO

Who are BRLMs to this IPO

How does term insurance work?

Benefits of term insurance plans

Cons of term insurance plans

5 best term insurance plans in India 2021

SBI Life eShield Plan

LIC e-Term Plan

ICICI iProtect Smart Plan

Max Life Online Term Plan

Aegon Life iTerm Plan

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