Don’t mix insurance with investment
18 Mar, 2014 12:12 PM
Separating the two makes you free to select the best products, depending on your need.

The tried and tested investment combination of real estate and systematic investments in debt and equity mutual funds is what Sanjay Kedia, Country Head and CEO of Marsh India Insurance Brokers believes in. Here's his take on the role investments and insurance should play in your wealth-building exercise:

What do you look for when making an investment?

I look for diversity in the portfolio, liquidity, and ease of administration. While selecting any fund house for an SIP, I look at their credibility as an institution and their governance rather than its past track record of yields delivered.

On specific stock selection, the biggest factors that influence my decision are governance and leadership besides the growth potential of the sector.

How much do you regularly set aside for investments?

As a discipline, I try and save at least 30 per cent of my salary, if not more.

What was your first investment?

My first investment was in a bank fixed deposit.

What have been your best and worst investments? What lessons have you learnt from it?

My best investment has been in residential real estate; the worst in shares of a steel company based on a ‘market tip’. The lesson learnt by the investment in shares is “don’t get swayed by market tips” but invest in something you understand and have fundamentally sound reasons to do so.

What asset allocations are you comfortable with and how do you rebalance the same from time to time?

A mix of real estate, equity and debt is what I am comfortable with. I am not in favour of investments in jewellery from the financial returns perspective, but it certainly raises one’s ratings at home! Investments in alternative assets like art are potentially good for people who understand this business.

How have you built your insurance portfolio?

Early in my career when I had significant debt on my home loan and was not able to save much, I bought term-life insurance for the entire debt portion plus around three years’ worth of annual salary, health cover for the family and motor insurance.

Later, I relied on company-provided term life and health insurance for the family, as well as group personal accident. Personally, I buy only motor insurance for the car.

Do you advise combining one’s insurance and investment needs?

Largely, no. The objectives of insurance and investments are different and combining them may not produce the best results. Buying insurance and investment separately allows flexibility and the choice of selecting the best available products depending on the need.

For example, term insurance is a pure risk cover, with benefits of cost-effectiveness, higher sum insured and transparency. Investments should be evaluated separately on merits.

However, if there is a specific tax advantage due to hybrid products (investment and insurance) and there is a net benefit to the person, it may not be a bad idea to combine both.

Insurance becomes a major saviour when the individual does not have adequate savings and further financing avenues. The sum insured should be based on the individual’s present outstanding liability, future needs, and current savings.

For example, in the earlier part of one’s career, a person may not have much savings and may end up with financial liabilities.

Hence, in case of any unforeseen event happening, he/she or the family may end up in deep trouble financially in the absence of insurance.

Why should clients appreciate fee-based advisory, especially when free advice in the market is easily available? Are clients more open to fee-based advisory now, than say five-six years ago?

There is value in fee-based advisory as it is tailor-made for individuals. Also, with too much free advice floating in the market, the customer needs to even select which free advice is right and suitable to one’s individual needs.

What are the best investments for retirement needs?

There are lot of specialised products now being launched in the financial market.

Personally, I have not explored those and still rely on the traditional investment combination of real estate and SIPs (both debt and equity).
Source : Business Line

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