Guest Interview: What’s the Role of Insurance in Financial Planning?
Today is World Financial Planning Day!
And there couldn't be a better opportunity to bring you this extremely insightful interview with Manish Chauhan, founder of Jagoinvestor, about the importance of financial planning and financial independence - and specifically, the part insurance plays in it.
Manish talked to us about the role insurance plays in the overall financial portfolio, and why it is important to purchase both term and health insurance policies before starting SIPs and other investments.
So, let’s dive right in
Prefer watching the video instead? Click below!
Can you please share something about how you got into personal finance and financial planning? How did you get the idea of building Jago?
We started out in 2008 when term insurance was just introduced to the market. I loved to write and started sharing my insights on personal finance with people through a blog, which later became a website. The idea was to ask people to ‘wake up’ as investors, and make informed decisions - and so, we chose ‘Jago’Investor as the name. On Jagoinvestor we wrote a lot of content on insurance, investment mistakes, mutual funds, and whatnot!
Then, a lot of people started coming to us, asking if we could help them personally one-to-one. That’s where we thought that there might be so many people who’d need personalized help - a second opinion and hand-holding at times. That’s how it started, and now we are here handling so many clients.
Where do you think insurance should stand on the priority list when aiming for financial independence?
When we say financial independence, it's more about creating wealth or a corpus of around 5 to 10 crores. The way I see it, term insurance is more of a protective layer around your financial life. If you don’t have that layer, then your whole game of wealth creation can get destroyed if something happens to you.
In the last 5 years, awareness has increased a lot. People know that they need to take a term plan to protect their families and they even take high term covers of 3, 5, even 7 crores. So, term insurance is not directly linked to financial independence or wealth creation. And people understand that it is the first step before they move towards the path of wealth creation.
When we speak about financial independence, health insurance makes more sense. Because if you get hospitalized or any medical cost arises, you’ll have to pay out of your pocket if you don’t have health insurance - you’ll keep on spending money out of your wealth. From that perspective, health insurance is the right product that helps you into financial independence.
The age group of 25 to 35 focuses on returns as a priority. How should these guys look at insurance as a product in an overall financial portfolio?
Term insurance, then health insurance, and then emergency fund - we feel these are the foundations of any financial life. Wealth creation has to start only once you’ve completed these steps, because if you directly jump into starting your SIPs or investment for your goals, they are likely to get disturbed. As life progresses, anything can happen. There can be a medical emergency, you might get a disease or you might die. So, we don’t let people move to the next step unless these foundation-level things are planned.
Coming to term insurance, I think anyone who has financial dependents should buy it. Especially people who are in the age range of 25 to 35 because they are in that zone where they are about to get married or just got married and there’s responsibility coming into their life. If they are very young, around 21 or 22, maybe they can wait for some time. But if they have their parents or any other financial dependents, then they should buy a term plan.
Can you share two tips with our readers on how to look at insurance or what should be the basics while planning insurance in an overall financial portfolio?
Deciding on the cover amount and finally making a purchase is a smaller issue I think. Many people do not mentally accept that they need a term plan. They take it very casually and think nothing will happen to them. People need to change this mindset. We mostly see people dying at old age. Only once in a while do we hear someone died in an accident or somewhere else and that is also generally in the news. We get very little exposure within our family or circle. But, people need to accept that they can die at any time because of anything, that is the first step.
Coming to the calculation part, I think taking a big cover is more important than taking the exact cover. So, if my family needs a 2.6 Crore cover and I take a 2 Crore cover, it’s fine, but I can’t take a 20 Lakhs cover. So, what I would say is take a cover that is sufficient for your family’s needs. People take too much time in calculating but it’s not that difficult. Like if I ask someone to tell me the sufficient cover for their family, I’m sure the number will come out. This is how I personally approach a term insurance plan.
Let me just give a thumb rule which we generally use. For pension creation, when a person dies there are 3 things a family has to arrange for. One, the future income, they have to make sure that the income is flowing for the next 20-30 years. Two, the outstanding loans they have to pay and get the burden off. Three, there are major milestones that will require a big amount like a kid’s education.
For creating a pension, we use the thumb rule of 400 times the monthly expense. So if the monthly expense is 50,000 Rupees, just multiply it by 400, that comes to 2 Crore Rupees. And then for the goals, add another 50 Lakhs, for the outstanding loan, add some 30-40 Lakh Rupees and you’ll get that range of 2 to 3 Crore Rupees. Just take that term plan. Don’t try to optimize beyond this point.
So, taking action is much more important than getting into the nitty-gritty, according to you?
Yeah, don’t spend more than a week in the nitty-gritty. Because you will not achieve too much. Once you know that you need 2-3 Crores, the exact numbers will be what - around 2.3 or 2.5, that’s all. So, just take a little higher cover if you’re eligible. So for 2.2, go for a 2.5 if you’re eligible and close it down.
When I started, I never got it - that even I needed to buy term insurance. But when I got to see people who bought term insurance and faced uncertainty issues, I decided to get a policy. People get triggered once they see a case in their life. I’ve seen so many cases where people start asking about term or health insurance when they see a family member or a friend dying.
I recently lost one of my very good friends because of Covid. 2-3 years back, I had asked him to take term insurance but he kept delaying it. I didn’t push him too much for this. But once he died, we came to know that he didn’t buy the term plan, he was talking about it but he delayed. Now, he has a wife and a 2-3-year-old daughter in his family. So, you can imagine. Plus it’s not just Covid, we all travel, go on vacations, we can die because of accidents - anything can happen.
You have such vast experience in personal finance. What are the 2 tips you would give someone who has just started as a financial advisor or are about to start?
I would say be good at communication. Because in our country, what matters more than anything is the way you talk to people and communicate your thoughts. People connect with people. If I like you as a person and am impressed by the way you’re talking to me and get that connection with you, then your expertise, knowledge, certification all become secondary.
The other thing I would say is, have a niche and educate your community because people like to engage with people who are educating them. Gone are the days where you just present a card and say I am a financial advisor, these are my services. People don’t get attracted to it now. They go either by recommendation or they search and take a lot of time in judging a person. So, if someone is educating them, helping them passively for a long time, that connection is much better.
So, I would give the highest weightage to these two things.
In your 15 years of experience, you’ve obviously educated thousands of investors. Can you please share one memorable moment of your professional life with us?
There are so many moments, I can’t pinpoint just 1 or 2. We keep getting a lot of emails from our clients after 3-5 years where they say that after starting their journey with us, they have got into that discipline of saving and investing. Earlier there was no accountability, no hand-holding, no structure. Income was coming in and they had no idea where they were spending the money. But once they got into the structure, they got disciplined, and slowly the wealth started building.
We’ve got emails where people have told us that they’ve created 30-40 Lakh Rupees in a matter of 2-3 years. They tell us they don’t know how it happened. What they mean to say is that nothing has changed except that structure. They say they were not able to do it earlier but now it is happening. And when we get these emails, this kind of communication - that makes us happy that this whole structure is helping someone. I think that is a bigger success than anything.
One more thing I would like to say is this is not about clients, but in general, we get a lot of investors, emails, testimonials where they say that because of reading our books articles, watching our videos, they have taken action and it has helped them. And we come to know about this only after 2-4 years when someone emails us and says that after reading our blogs or articles, they took this action and it helped them.
So, this really fills us with happiness and pride that our work is helping someone we don’t even know.
How has your journey been so far, with Beshak?
So many websites and platforms have insurance plus something. But Beshak is dedicated to insurance and has been doing wonderful work. It is extremely customer-centric and is trying to simplify things for the customers. The products that you guys have launched - TruMatch and the Rating, a lot of work has gone into that and the journey has just started.
There are a lot of insights that we also got from Beshak. If I talk about your Ratings product, there are so many things one can check. It’s not just one premium or the claim settlement ratio which generally people see, but there is a set of 30 - 40 parameters one should be looking at while buying a term plan. These thoughts don’t come just like that. But once these products came, they gave a new perspective.
Also your Beshak Insurance Forum - it’s super fast. People now have a place where they can ask anything about insurance, and get answers and resolutions very fast. That is wonderful.
How do you like our Telegram Channel for Financial Advisors and Customers?
I think it’s not very old right now. Less number of things have happened but yeah, it’s a dedicated space to get a lot of updates, especially for the advisors. I sometimes go through the weekly roundup. That is very good because I can get lots of information curated in one place. It’s a wonderful space to get updated about insurance. Plus, on the investor side, I’ve not been too active, but I see a lot of polls happening and updates coming in. So yeah, it’s also wonderful.
What’s your take on TruMatch as a product?
Normally, investors spend a lot of time deciding how much cover to take, which plan will be suitable, which company to buy from - will it settle the claim fast. Ultimately what they’re trying to do is match their requirements with the company. So, if someone wants a staggered payment, not the lump sum payment, they search for companies that provide that option. So, TruMatch, in that perspective, makes their job very easy.
For someone who wants to buy a term plan, TruMatch will give all the bits and pieces for taking the action. It will tell you what cover will be right for you, what kind of payout you should take, etc. It matches that requirement and suggests the companies that sell that kind of product. So, the person has got the amount, the direction, and the product name.
And it is very quick and user-friendly - people can use it and take the action fast.
So, this brings us to the end of this extremely insightful interview with Manish. We would like to thank him, once again for sharing his expertise and insights with us and the Beshak community and look forward to engaging more with him.
Hope you got some lessons to take away about the role insurance plays in your overall financial portfolio. You can follow Manish Chauhan on Twitter at @jagoinvestor_ , and get more insights on personal finance, investment planning, wealth creation, and more.
If you have any further questions you’d like to ask our experts, you can post them on the Beshak Insurance Forum and get answers for free!
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