Before you learn the mantras of investing, get rid of these traits which eat into your savings

1 Lust 
"I want..." could be the most 
dangerous words for your finances, mostly because we seem to want everything--a world tour, a swanky car, a plush abode. However, extravagance can lead to financial hell. Always remember the first budgeting lesson: separate your expenses into discretionary, necessary and luxury. Indulge in the last one only when you've taken care of the first two. 2 Wrath 
"I picked a good stock, but ran 
into bad luck." "I work so hard 
in the office, but the boss is partial and doesn't give me a raise." If you tend to blame everything and everyone for your dire financial straits rather than yourself, you're letting emotions cloud your judgement. Anger could also lead you to be impatient and make impulsive choices. Learn to evaluate your decisions rationally and, more importantly, figure out a way to remedy the situation. So, invest in your career by re-skilling, or work with a high performer to learn how to do the job right. 3 Pride 
Ok, it's always difficult to 
admit you're wrong, but doing so will be one of the biggest financial favours you could do. To yourself. So, if a stock you considered a great pick has tanked, swallow your pride and admit that you made a wrong decision. Holding on to your arrogance and an investment that is losing money will only mean that you're losing out on benefits you could have earned had you invested that money somewhere else. Here's one way to keep your ego out of your investment decisions. Set a stop-loss order for all your stocks. If the share price falls below a certain limit, sell it. 4 Envy The Jains and the Sharmas have it, which means you want it too. It doesn't matter whether you can afford it or not. Envy could lead you into the big black hole of debt, and escaping it can be rather difficult. It may be tough, but living within your means is the only way to financial independence. A loan is good only if it helps you build an asset that will grow in value. Otherwise, avoid taking one.5 Greed 
'Buy one, get two free!' 'Low interest rate of only 7%!' 
Tempting offers, aren't they? But have you checked the hooks attached to these baits? The greed to make a quick buck often blinds us to the high risks that come with attractive schemes, making us prey to various traps and scams. You should ascertain your financial capability and risk-taking ability before opting for any scheme. Fix a specific target for your investments, and when you achieve it, redeem the investment. 6 Sloth 
Procrastination can cost 
you big money. If you're 
lazy about paying your 
    bills, you could end up with hefty penalties, ranging from 75-100 for a delayed phone bill payment, to 2.5-3.5% a month on the overdue amount of a credit card bill. Worse, if you fail to pay an insurance premium on time, your policy could lapse. To avoid this, start ECS payments and make a financial calendar. Check it every month to ensure that you don't miss out on any goal. Of course, your work doesn't end here. Plan well in advance for your goals and rebalance your asset allocation regularly to achieve them. 7 Gluttony 
Going obese on anything will just make it difficult for you to stand up again if you fall. So, concentrating on a particular industry, theme or stock is a bad idea. Remember the fate of most infrastructure funds and the fact that they've still not managed to recover? Ensure you have a balanced financial diet by diversifying your investments so that your portfolio remains healthy.

Can you rely on free insurance?

Don't be lured into buying products just because they come with free or additional insurance. Find out if they suit your requirements.

Indian customers love freebies. Shampoo sales soar if a soap bar comes free with it. A microwave oven is a hit if you bundle it with free cookware. LED TVs are bestsellers if you throw in a music system gratis. These marketing gimmicks keep the cash registers ringing in retail outlets. 
    The financial marketplace is no different as companies lure customers with offers of cheap—evenfree—insurance. Mutual fund investors are offered free life insurance, car buyers are given free vehicleinsurance, and home loan customers are told to take a loan cover at a nominal cost. So, along with the base product, you get another absolutely free. Or so you think. The first rule of intelligent spending is that there are nofree lunches. The seller factors in the price of the freebie in the total price payable by the customer. Besides, in order to avail of this free insurance, the customer may be signing up for a product that does not really suit his needs. In a discussion paper released last year, the Insurance Regulatory and Development Authority (Irda) had noted that bundling could raise 'certain concerns for the consumer'. 'Packaging two or more products could become unfair to the consumer as it impedes choice and makes price comparison difficult,' the regulator had observed. The bigger danger is that free insurance gives the consumer a false sense of security. Theinsurance cover may not be adequate. For instance, the free insurance that comes with SIPs in mutual funds is capped at 20 lakh. Experts say that one should have a cover of at least 4-5 times his annual income. Besides, there are too many strings attached, making this type of insurance a poor substitute for a regular term cover bought independently. "The SIP insurance is a good option as long as the cover is not seen as a substitute for a proper cover," says financial planner Jayant Pai. 
    There are other reasons why consumers must not depend solely on these covers. Given that they are freebies, they can be withdrawn at short notice. Two weeks ago, the SBI announced that it was withdrawing the free accident insurance given to its home and car loan customers from July this year. The bank did not assign any reason for withdrawing the cover. 
    ET Wealth examined a few of these two-in-one products on offer and discovered that while some were beneficial for customers, in many others, the buyer did not really derive any value from the bundling ofinsurance with other products and services. Free car insurance 
The free cover is only a substitute for the cash discount offered by a car dealer. 
    The car market is going through a bad phase. The sales fell 6.7% in 2012-13, the first time in 10 years. The January-March quarter was particularly bad, with a 22.5% drop in sales, and analysts expect more pain ahead. Car manufacturers are trying every trick to push sales. One such gimmick is free insurance offered to buyers. 
WHAT'S THE GAIN? 
Free car insurance, even if it is only for one year, is a big draw with buyers, who may have emptied out their bank accounts for the down payment. You can also expect better claims servicing because the dealer will follow up your case with the insurer. The convenience of getting all the paperwork done under one roof is another positive. 
WHERE'S THE CATCH? 
The free insurance is not really free, but a substitute for the cash discount offered on a car. "Theinsurance premium for the first year to be paid by the customer is borne by the dealer," says Madhukar Sinha, national head, personal lines, Tata-AIG General. 
    Besides, the free insurance may not include add-on covers. "It will typically not include the zero depreciation cover and engine protection," says Ajay Bimbhet, managing director, Royal Sundaram Alliance Insurance. "Occasionally, these plans also offer customised benefits, but this is usually in the case of high-end vehicles," says Arvind Laddha, CEO, Vantage Insurance Brokers. 
    The bigger problem is that you may never know whether you got a good deal. "The cost is not disclosed transparently. The buyer should ask for details of the insurance cover before buying it so that he can compare the price with other plans in the market," says Laddha. 
    Moreover, you will have no say in the insurance company or the product on offer. The dealer will tie up with the insurer of his choice. "The insured must, therefore, understand the coverage as well as the service capabilities of the particular insurer before signing up for such a policy," he adds. Free life cover with SIPs in mutual funds
It's beneficial, but shouldn't be a replacement for a regular term cover. 
    Imagine a Ulip that charges you only 2.25% a year, doesn't levy a heavy penalty if you quit investing, and doesn't deduct any surrender charges on premature withdrawals. The SIP insurance plans from three mutual fund houses—Reliance Mutual Fund, ICICI Prudential Mutual Fund and Birla Sun Life Mutual Fund—offer exactly this. SIP investors get a free life cover under these plans. 
WHAT'S THE GAIN? 
On the face of it, the offer looks good. You don't spend a rupee on the free life insurance that comes with your mutual fund investments. As we said earlier, it's like buying a Ulip without paying the exorbitant charges. "The investor gets a life insurance cover merely by having a SIP in an equity scheme at no additional cost," says Srikanth Meenakshi, director, FundsIndia. 
WHERE'S THE CATCH? 
The insurance comes wrapped in several terms and conditions. First, the investor gets a life cover only if his SIPs are on track. Miss two consecutive SIPs, or four SIPs in all, and your cover gets blown away. There is an exception in case of Birla SIP Century. If you have given 36 SIP instalments, the cover continues even if you stop investing. However, if you switch to another plan or make partial withdrawals, the contract terminates. Even partial withdrawal results in the insurance being terminated. 
    There is also a heavy exit load of around 2% if you switch or redeem the investment before the completion of the SIP tenure. So, make sure you choose a scheme that can offer stable returns over the long term. Go for a diversified plan with a good record, instead of a fund that has given jerky returns. "On the one hand, the free lifeinsurance acts as an incentive not to discontinue your SIP during bad times, but it also means that you remain stuck with a lemon for a long time," says Meenakshi. 
Accident cover with credit cards 
The cover offered is very cheap and should not make you opt for a costly card. 
    Personal accident insurance is a unique cover that everybody needs, but very few buy. Some credit card issuers offer a free personal accident cover along with their high-end cards. Others offer discounted prices to their customers. The option comes in handy if the card holder dies or suffers a disability due to an accident. 
WHAT'S THE GAIN? 
The biggest advantage here is that one gets covered against a risk that he would have otherwise ignored. As mentioned earlier, very few people buy a personal accident cover. Convenience is the other benefit. "The cardholder pays a small premium every month, which does not pinch his pocket, but ensures a greater protection for his family," adds Bimbhet. 
WHERE'S THE CATCH? 
The free accident cover comes with stiff terms and conditions. Every card issuer has a different yardstick. Some require you to use your card for a minimum amount. Others want you to make a minimum number of transactions every quarter. Some don't consider buying fuel in the calculation. 
    Personal accident insurance is a very low-cost cover. An insurance cover of 2 lakh costs only 150 a year. "The free cover does not offer any great value to the buyer. Don't opt for a credit card only because it offers a free personal accident cover. Only if the cover is 20-50 lakh does it add real value," says Mahavir Chopra, head, personal lines and e-business, with health insurance consultancy firm, Medimanage. In other words, treat the free cover as an ancillary benefit, not the core advantage of the card. 
    The bigger problem is that such free personal accident covers offer basic protection against death and total permanent disability. The partial and temporary disabilities are not usually covered. So, you should buy a policy yourself, instead of depending on the free cover. Besides, the claim settlement procedure could be tedious because the claim is to be routed through the card issuer. "You have to intimate the card issuer, not the insurer. Since this is not a core function of the card issuer, expect the service to be mediocre," says Chopra. 
Term insurance with home loans 
Buy regular term insurance that will continue even if the home loan ends. 
    Lenders don't like to take risks. So, before they give you a home loan, they will size up your income level, repayment capacity and credit history. Even if everything is in order, they will push you to take a home loan cover along with the loan. If something happens to you, the outstanding loan will be paid by the insurance policy. 
WHAT'S THE GAIN? 
Home loan covers are usually single premium policies. The premium is paid through the loan, so the buyer doesn't feel the pinch. "Borrowers also have the option of buying such covers directly from the life insurer. They need not pay the premium upfront, but can choose to pay it over a period of, say, five years," says Sanjeev Pujari, chief actuary, SBI Life. Also, since this is offered as part of a group cover, individuals can get a high cover and are not required to undergo medical check-ups before buying the plan. 
WHERE'S THE CATCH? 
Unlike a regular term insurance, loan insurance plans offer a reducing cover. As you repay the loan, theinsurance cover comes down and ends when you repay the entire loan. This also means that if you choose to refinance the loan with another bank, you will lose the insurance benefit. 
    Besides, this cover is for the term of the loan, while in most cases a borrower prepays the loan. For HDFC, the average loan tenure at the time of application is a little over 13 years. However, as the incomes of the borrowers go up, the average loan ends in less than five years. Why pay for a 15-year plan when you actually need the cover for 7-8 years? 
    A better option would be to buy a regular term plan when you take a loan. Even after you have repaid the loan, the cover will continue to protect you. As the table shows, for a marginally higher premium, you can get a cover that does not diminish.

Why investors refuse to pay Investors will pay a fee to financial advisers only if the latter can deliver a good performance

One question that refuses to go away is whether investors should pay a fee for investment advice. The proposed new advisory regime, which has been implemented in many other countries, asks advisers to seek fees from investors. The commission paid by producers, such as insurance companies and mutual funds, is being phased off to ensure that advisers do not push unsuitable products to investors. My interaction with banks, broking houses and independent advisers indicates that most of them will choose to remain distributors. Most are not confident of earning adequate fees from investors to replace commissions.      There are three primary reasons why investors are unwilling to pay a fee. First, the risks in a financial product would mean varying rates of return, including a negative return in bad years. The advisers who cannot offer meaningful asset allocation strategies to deal with risk are seen as not adding any value. Second, the services of the adviser seem easily replicable. They are unwilling to pay for expertise when they don't perceive it. Third, several advisers, including some large institutions, pass on their commissions to investors. This practice, though explicitly banned by the code of conduct and ethics, is widely prevalent. Investors are used to being paid for making an investment and would like this arrangement to continue. The issue needs effective policing and penalties.      It is not as if fee is not paid by anyone in the market. There are financial planners of repute, who earn through fees and disclose it as being their only source of income. Then there are those who earn both fees and commissions. Some banks and broking houses charge a fee and debit clients who miss the fine print in the agreement. Alert clients may fight to end this unless they see value in it. The reality, though, is that in a competitive market with mixed practices, advisers fear losing customers if they ask for a fee. Even if they choose to stay out when the Sebi (Investment Advisor) Regulations, 2013, come into force, financial advisers are aware that they have to make a switch at some point in the future. How can they make the transition?      They need to showcase the value they add. If one considers the data on mutual fund assets, three trends are obvious. First, investors buy funds in a rising market and quit in a bear phase. Second, they chase performance and buy into past winners. Third, they opt for new fund offers with no track record. None of these three buying strategies is likely to have made any money, and poor product choice is at the root of investor dissatisfaction. Since distributor push is also partly responsible for these choices, investors do not trust the financial advisers to recommend the right products. In order to charge a fee, advisers should demonstrate expertise in choosing products, be willing to dissuade the investor from buying past winners and NFOs blindly, help them sell losing products, and discourage investing during market peaks.      The sad reality is that today most professionals are unable to demonstrate that their recommendations are based on solid research. Too few advisers have invested in research and most lean heavily on inputs provided by free research that may be generic or focus on the basics. Advisers should publish newsletters, research reports, or studies that demonstrate expertise in analysing a product for its risk, return and performance. To make a case for a fee, independent and rigorous research from investment advisers should be available.      Investors do not perceive any expertise if advisers scurry for cover when they are asked a technical question about the markets or products. The vast majority that has earned commissions from selling insurance and mutual fund products still leans on producers to pay for their learning, seeks short-cuts and sound bites, and prefers 'practical' training that translates loosely into sales tips. The employees of banks and broking houses struggle with hiring and employee quality when relationship managers fall short on knowledge and technical competence. Those with CA CFP or CFA degrees are the first movers in the fee-based model, and each one of them vouches for holding out knowledge as the key to asking for a fee. If customers do not see serious investment in knowledge, they are unlikely to oblige with a fee.      Ideally, advisers should combine prod ucts to construct portfolios that deliver returns within a defined range at a lev el of risk acceptable to the client. The fee is to enable such portfolio perform ance. A fund manager earns a fee for se lecting securities, showcasing perform ance and beating benchmarks. An ad viser should earn a fee for allocating as sets, selecting products, showcasing per formance and delivering for the investor' goals. Without making the investment to get there, advisers may not be able to seek a return in the form of fees. That is the tough transition. Investors and reg ulators have only made it tougher.

1.5L payout for denying non-surgical method claim

Mumbai: An insurance company and a third-party administrator will have to pay a Mahim resident the insured amount of Rs 1.1 lakh and a compensation of Rs 45,000 for wrongly repudiating his claim.      The man had undergone a non-invasive treatment to treat his cardiac ailment. Oriental Insurance Co Ltd, through Vipul MedCorp TPA Pvt Ltd, rejected Devdatta Redkar's claim on the grounds that it was an unproven treatment. On March 18, 2009, Redkar underwent coronary angiography. He was diagnosed with ischemic heart disease and advised bypass surgery.      However, at another centre he was advised to undergo enhanced external counter pulsation treatment (EECPT), which was non-invasive.      Redkar said he underwent 45 EECPT sittings at a cost of Rs 1 lakh. The treatment lasted from April 2009 to June 2009. In May 2009, he informed theinsurance company about the treatment and its estimated cost after which he filed a claim of Rs 1.10 lakh. On July 27, 2009, the insurance company told Redkar that the investigations done and supportive treatment received were consistent with the disease and line of treatment was in accordance with the diagnosis. However, the procedure fell under the policy's exclusion clause. The insurer stated that the expenses are related to an unproven procedure. Redkar filed a complaint on December 31, 2010. The forum relied on the evidence that the treatment is an accepted treatment for heart disease.

Acquitted in wife’s suicide, man wins 55L insurance claim

Mumbai: Eight years after a man lost his wife in a kitchen fire and he was subsequently acquitted on charges of causing her death, the state commission on Monday brought to book an insurance company that had repudiated his claim on the ground that the death was a suicide and there was a delay in filing the claim. 

    The insurer will now have to pay Santosh Jawadwar the insured amount of Rs 55 lakh. While Rs 50 lakh was the cover given to his wife, Rs 5 lakh is to be paid towards the educational benefit of his daughter, according to the policy's additional benefits. 
    Holding Tata AIG General Insurance Co Ltd guilty of deficiency in service, the Maharashtra State Consumer Disputes Redressal Commission said during the course of the hearing, the advocate for the insurance company did not provide a satisfactory explanation as to how the claim can be repudiated on account of alleged suicide without adducing tangible evidence. "Also no satisfactory explanation came forward as to how the delay in notifying the claim in genuine cases empowers the insurance company to foreclose the claim," the commission observed. Jawadwar's lawyer Mukund Barve said they might file an appeal as no interest was awarded as compensation. 
    Jawadwar had subscribed to the accident guard policy which provided cover to himself and his family. While Jawadwar was insured to the extent of Rs 1 crore, his wife Kalpana was insured for Rs 50 lakh and his daughter for Rs 10 lakh. On the evening of February 20, 2005, an eight-months pregnant Kalpana died of severe burn injuries in their kitchen. Jawadwar, then 28, had said he and his nineyear-old daughter were out of the house and learnt of it only after seeing a huge crowd outside when they returned. Initially, police ruled the death was accidental. However, after Kalpana's brother filed a complaint with the police, a case was registered against Jawadwar for abetment to suicide and domestic violence. He was arrested and subsequently released on bail. On April 7, 2006, a sessions court acquitted him of all charges. The court also said "possibility of accidental death cannot be ruled out". 
    Jawadwar had first notified the insurance company seven months after the incident on September 22, 2005. The claim however was repudiated on multiple grounds. The insurance company stated a notice of the claim should have been given within seven days and not later than 30 days from the date of the incident. Jawadwar filed a complaint with the commission in 2006 where Barve argued Jawadwar was under mental stress due to his wife's death and subsequent legal battle. 
    Iterating its reasons for rejecting the claim, the insurance company told the commission that Kalpana's death was a suicide according to the police chargesheet. It stated that suicide was excluded from insurance cover and it was justified in denying the claim. The commission however said there was no conclusive proof to show the death was a suicide and the use of this ground by the insurance company for repudiation was unfounded and it was not sustainable in law.