The Capital
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The Capital

How to Reduce Sting of Insurance Premiums

On the eve of the Valentine’s Day, there may not be a better topic to discuss than this. If you truly love your family and spouse, surely you would want to do everything within your resources to ensure their happiness even when you are gone. It certainly sounds cliched …………. but this is an idea worth exploring. Fortunately, since many of us think this way, there are many insurance companies who offer multitude of insurance products to suit each individual requirements as discussed in the previous post.

Hey guys wishing you all a very happy Valentine’s Day and excited to be back discussing one of the most essential but less understood subjects of financial planning — Insurance. So far in the previous blogs, we had discussed what is insurance, its financial model in brief, why should we consider taking it, and in the last post, we also discussed in detail life insurance, various types of schemes available for life insurance, and who should consider taking it. While I am sure none of you will argue about the utility or the importance of the insurance and particularly life insurance, many would find it difficult to afford it. The cost of insurance certainly can be prohibitive for many, especially from lower-income groups. It may not be possible to completely eliminate the sting of insurance premiums, but there are some smart tricks that may lessen the pain of this sting. Therefore, in this post, we will discuss all such measures which may help a person to plan better for these expenses.

Always Plan from Year to Month to Week — Unlike the common practice of planning for a month or week based on your salary or payment cycles, it may be beneficial to plan in a Zoom Down approach by adopting yearly planning. The yearly plans will give you the flexibility of slotting in your ambitions, may that be for that expensive watch, dress, investments, or insurance premiums. The trick here is to list all ambitious plans first in order of your yearnings, then optional, and lastly, the essentials such as rentals, medicals, school fees, etc., and now put an estimated number next to it reflecting approximate yearly expenses. The only rule is that the sum total of all expenses can never be greater than the total earnings. Therefore, if needed prune the expenses from the list to keep it within earnings. Now break these values into monthly values. This simple half-hour to the one-hour activity will give you a realistic assessment of what all are possible, their relative importance, and for how much amount.

Plan your Monthly / Weekly Expenses — After yearly planning and breaking it into a monthly sheet, you already have a rough plan at hand, refine it further with exact details to nearest tens values. For those who have varying expenses, it will be advised to plan for all 12 months. Again the basic rule is that yearly expenses can never be greater than the total earnings. This exercise will help you cater for the additional expenses in certain months such as birthdays, anniversaries, planned family functions, etc. Finally, if you total up the entire expenditure for all the months and subtract it from your earnings, you will get the surplus which could be used for planning insurance or investments.

Choose Yearly over Monthly Subscriptions — almost all plans, be that your telephone/mobile plans, dish/cable / OTT/society maintenance charges, or even premiums for insurance, offer you the flexibility of choosing from monthly, quarterly, or yearly plans. If you carefully go through these plans you would notice that yearly plans for almost everything will offer at least 5% discount which may often go up to 50% based on promotional schemes at that time. Therefore, the logic is very simple, why pay more for the same service? In any case, the money saved by planning and opting for yearly schemes may be channelised for better purposes such as enhanced insurance amounts or savings.

How to Pay Yearly Subscriptions? — At the outset, it looks quite a daunting task, but if we plan well, this will not only ensure freedom from monthly cycles of payments, thus more convenience but will also save you a lot of money eventually in a long run. If you consider the monthly compounding, this amount is quite capable of becoming comparable to your total savings by the 20th year. The trick lies in taking equal amounts every month and investing in conservative investment instruments such as bonds or blue chip mutual funds with monthly SIPs (Systematic Investment Plans) or Recurring Deposits (RDs) etc.

Pro Tip: Plan Your Journey

1 — List down all recurring expenditures whether it is school fees or insurance premiums, and read all relevant information to check if these can be paid yearly in one lump sum. If yes, then dig deeper to see how much you will be saving and arrange these expenditures in order of savings from top to bottom, to prioritize them.

2 — Now, carefully examine the dates and months when these liabilities become due and pick out expenditures that are spread out over months. This is first to space out financial outgo, and secondly, it will offer you valuable time to save enough to switch from monthly to yearly schemes. If the amounts are too large and if there are options to choose from for quarterly payments, then for a short while, you can consider switching first to quarterly before finally opting for yearly payments.

3 — In financial matters, it literally pays to be patient and diligent. Therefore, start with one or two expenses, and over a period of time, you may convert all of them to yearly expenses.

4 — Against the intuition, divide the entire yearly subscription or premium into 11 equal parts and not 12. This will accrue many benefits, the foremost being you will never be late for payments, and over a period of time, you will also be able to convert more payments to yearly mode with the spare one month’s accumulation.

That’s all for this post, guys. Though the planning as discussed, is more applicable for mega expenditures such as insurance premiums, it can be applied to all planned expenditures. The basic rule here is…that every single rupee saved can be utilised to generate wealth for the future and will push you closer to attaining financial freedom — our mission in life. On that note, let me also request you all to forward this post to all your friends and family for spreading financial awareness. This weekly five-minute reading of financial issues may help you and your friends plug many of the inefficiencies in our daily financial dealings through which we keep bleeding money. Guys!!!!! If you like the post, please show your appreciation by hitting the clap button on the bottom left, and for the new readers, please do not forget to hit the FOLLOW button before you leave the page. See you again next week with more discussions on insurance-related subjects.

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