Critical Illness Insurance – what, why and when should you buy?

Let me do a quick check before you start reading this article. Have you purchased health insurance or has your employer covered you? If your answer is no, then you should close this article and instead start assessing options to purchase health insurance (see my article here https://rorywealth.blogspot.com/2020/04/at-this-time-you-are-in-one-of-these.html). This is because a regular health insurance must be availed as one of the first steps in your financial journey. For a small annual payment, you can cover yourself from financial expenses related to health issues, whether it is minor or major. 

If you already have health insurance cover then you know what I’m talking about. Now you must consider purchasing critical illness insurance. It is categorized under health insurance but it has benefits that are different from a regular health insurance policy. To understand this better, I’ve done a comparison on key points in the table below 

To summarise, treatment of a critical illness can be very expensive and a regular health insurance policy may not cover it adequately. A critical illness insurance will provide a lump-sum benefit which can be used to manage unexpectedly higher medical expenses or take care of your livelihood in such difficult times. Like health insurance, it is better to purchase it at an early age and keep it going (as people tend to develop health problems as age increases)

I hope this article helped clear any misconceptions about critical illness insurance. If you have any queries or want me to assess your existing policies, drop a message to mathewpravin@yahoo.com / +91 9900335853 and I’ll be happy to help.

What is a mutual fund? (part 1 of the series -- how to build a mutual fund portfolio)

You can view the video on YouTube here

This is the first of a series of articles on building a mutual fund portfolio. My goal here is to help you understand how a mutual fund portfolio is built. Over this series, I’m going to take you right from understanding a mutual fund and its features to selection of funds, increasing or reducing your investment and also monitoring it. However, if you are a first time investor or someone who has not completed 5 years of investment in mutual funds, please consult an IFA i.e. an independent financial advisor. So why write these articles? There is good and bad advice so these videos will help you better understand what mutual funds are and help you navigate them better. Lets get into it then.

What is a mutual fund?

A mutual fund is formed when capital collected from different investors is invested in company shares, stocks or bond. Whom is it collected from? Say Rs 5,000 from me and Rs 10,000 from you and so on. Whom do we give it to? A fund house who uses this money to buy and sell shares on our behalf. To understand this better let us look at a popular fund – Axis BlueChip fund. The fund size is approximately Rs 11, 800 crores. And what has the fund manager done with this money? He has purchased stocks of different companies with the idea of selling it when it reaches a certain target price. Here are the stocks in the portfolio of Axis Blue Chip fund

You can also look at the holdings in a different way, that is sector wise

So if you are investing Rs 10,000 your money is going into  a pool which is then used to buy company shares.  Do you own the shares? No, you own a share of the mutual fund. For example, if a fund holds Reliance Industries in its portfolio, the mutual fund investor does not directly own Apple stock.

The obvious benefit is diversification i.e. don’t put all your eggs in one basket. This is one among many advantages of mutual funds which I will cover in the next article but for now, I wanted to highlight a few more features of mutual funds.

A mutual fund has clearly defined objectives. Taking the same example of Axis Bluechip fund, it is categorised as a large cap fund which means that the fund can only purchase the top 100 companies by market capitalisation listed on the stock exchange. 

A mutual fund is professionally managed. A fund manager doesn’t work alone. He is backed by a large team which comprises of research analysts who study world markets, monetary policies, sectors, individual companies. Basis all this data, the fund managers take a call on which stocks to buy and when to sell.

Mutual funds charge fees called expense ratios which are deducted from your investment. It can be anywhere from .1% to 2.25%. Roughly translated, it means that if you are investing Rs 10,000 and the expense ratio of the fund is 1% then Rs 100 will be retained by the fund as management expenses. 

A mutual fund house, which runs the mutual funds, is a separate entity. So Axis MF is not part of Axis Bank and HDFC MF is not a part of HDFC Ltd or HDFC Bank

Well regulated by SEBI - Securities and Exchange Board of India

In the next article, I will cover different types of funds and their advantages and disadvantages and then we will go onto how mutual fund investors make profits or losses. If you liked this article, then stay tuned for the next few ones.

Don't buy health insurance out of fear!

You can view the video on YouTube here

At this time, you are in one of these two groups – you have health insurance (either corporate or self-purchased) or you don’t have health insurance. 

If you have health insurance, in all probability you would have received communication from your insurer (or your HR) stating that you are covered for hospitalization expenses against coronavirus.

If you’ve not purchased health insurance, you’re wondering if you should take one now. The answer is yes but only if you genuinely have a need for it (and not because of the fear of coronavirus). Insurance is a financial decision. It is slightly complex because one has to calculate an approximate amount they may need in the future. It involves a cost which is not low so don’t rush into it. The best part is you can do the whole thing online, without meeting anyone (even if it is through an insurance advisor). 

Once you decide on the product, the coverage amount and the premium, there is an online application form to fill. You may have to upload an identity document (PAN/ Passport etc). After this, you will have to pay the required premium, again online. Once the approval team (underwriters) goes through the application, they can either approve it or ask for some clarifications.

There could be a second process  - a medical test. This is required only if 

1. If you are above a certain age (usually 45 years)

2. If have a pre-existing condition (asthma, high BP, cholesterol, diabetes etc)

Usually, a blood test is enough and it is convenient because a person comes home, draws blood for testing. You may be asked to visit a diagnostic center for a specific test (example - pulmonary function test for asthma, treadmill test  for high cholesterol levels). The good news is some insurance companies are now doing tele / video call to see if they can waive the medical test. So if you are above 45 years but don’t have any pre-existing diseases, there is a high chance that you won’t have to go for a medical test. Again, contactless and safe (in the current context).

If you want a specific policy to cover coronavirus, check this article https://www.financialexpress.com/money/coronavirus-insurance-looking-for-a-covid-19-cover-here-are-your-options/1905821/  Remember to first check with your existing insurer for cover of  hospitalization expenses against coronavirus. As of now, the government is treating all patients so this cover may never be used. 

A quick checklist to assess health insurance policies

1. If you have a pre-existing condition, apply for a health insurance product which specifically covers that condition as there are higher chances of approval (yes, the premium will be higher)

2. Read the product brochure carefully to understand the features. Use this document to compare between products.

3. The more features a health insurance product has, the more it will cost

4. If you have a specific query, ask for the policy wording. Use the search option and read the specific terms associated with that. For example, if someone has varicose veins, they can search the policy wording to get a better understanding of how the insurance company treats this particular illness.

5. A good advisor will help you understand the terms and conditions better. They will also manage the claim related co-ordination, reducing hassles when you are already dealing with a medical condition.

6. Study the waiting periods and the exclusions so that you are not caught surprised at the time of claim.

Health insurance products are not simple and there are many features which sound important but may not be useful. Do try to analyse in detail and ask for clarifications till you are satisfied. Please feel free to contact me at mathewpravin@yahoo.com / 9900335853 with your queries and I’ll be happy to clarify.