Guaranteed Products… non-guaranteed Financial Planning

Do you know why the GST numbers for March 2023 were so high? The dynamics of investment and investors have changed dramatically in the last couple of years.  Forgetting the 2020 pandemic rally we have now become part of a continuously changing market where it is becoming difficult for investors to invest. Adapting to a continuous change market is the new art that every investor needs to engrave in their behavioral investment journey. Job loss has become a common buzzword and rising fluctuating EMI is now a trap for investors.  Investing has become more complicated and the time frame of keeping a SIP alive is falling every day within these uncertainties.  In a country like India financial data is often so late that the real pattern of the state of the economy is hard to predict. Obligations of investment and commitment need to be understood well above highlighting the returns and inflation-adjusted returns. Even inflation accounting is understood by very less people and that’s too from the financial industry.  

31^st March 2023 has been a record month for the Insurance industry where investors parked huge amounts of money in guaranteed products. In many cases, it has been found that the premium was to the tune of 5cr (regular premium) getting deployed in guaranteed products. Well, we doubt how much got into health insurance and how many people have increased or doubled their insurance coverage compared to guaranteed products. The guaranteed products have garnered huge premiums but these are investment products and not insurance against life risk or uncertainty.

Well, investors who have purchased these products are like the same ones who thought in the last 2 decade that banks and FD is the best and safest product while inflation came haunting at the time of retirement leaving no wealth. In the next 10 years or 20 years, the cost of gas cylinders will be Rs.2000 to Rs.4000. Now at the time the inflation might be at 4% or 5% but the cumulative inflation impacting price increases will be 100% above in the next 10 years. So now these guaranteed products will remain at the same value as the FDs which after 20 years one investor at the age of 65 is getting.

Guaranteed or non-guaranteed, health insurance or any other type of Insurance of them needs a judgment matrix so that priority is set towards investment products and risk coverage. The insurance word has been so much misused that India has always suffered from huge Out-Of-Pocket-Expenditure (OOPE) for health Out-Of-Pocket-Expenditure (OOPE) for health. India’s Out-Of-Pocket-Expenditure (OOPE) for health is one of the highest in the world at 63 percent in 2018. Indians pay more money out of their pockets than some of the poorest countries in the world for availing of healthcare.

Out of what Indians spend on healthcare, medicines constitute the highest share (72 percent in rural, 70 percent in urban), followed by hospitalization (getting admitted, tests, consultation) and non-hospitalization (transit, food, etc.) expenses.

Further new variants of covid getting discovered every now and then leads to a significant increase in the cost. Health insurance coverage has fallen short in all angles and will turn out to be minuscule in the coming years compared to the rising cost of healthcare. In the last couple of years, we have witnessed how people have lost their life from a sudden heart attack. The list of people s endless that have died suddenly from heart attacks with no signs of prevailing symptoms.  In a country like India financial planning and insurance planning is very poor.   People of India are more aware of Bollywood rather of health and health-related products.

Lack of Insurance planning and creating an investment and insurance matrix is important to delve into the behavioral aspect of an investor and to guide him accordingly.  Words like guaranteed leads a  completely wrong financial advisory and high-risk game for the investor's life.

The word Insurance and premium have turned out to be nightmares and burdens on the shoulder. Insurance planning is one of the most miscalculated and misguided investments where a family suffers in the long term.

Smartwatch has replaced the traditional watch but monitoring and analysis of the heartbeat data have taken a backseat. India suffers from insurance and despite healthy eating medical cost eats up the financial assets. The question is how we plan our investments, life style and align the same with gadgets to safeguard against massive wealth erosion.

The biggest risk of long-term commitment to these guaranteed products in these changing times is that in many cases the investor may not be able to meet the liability of investments in the guaranteed products. In India when the stock market falls we stop our SIP which is one of the best rupee cost-averaging products benefiting the investor over the long term in wealth creation. 

Now how will the investor keep paying the high premiums for guaranteed products?  Well the number of premiums sold in guaranteed products in the JFM will get more clarity in the next financial year when a significant % of the same will not pay.  Many of the wealth firms will face the heat of bounced cases for premiums and the ultimate suffers will be the clients who did investments based on herd mentality.

Well while paying insurance premiums the GST is paid separately hence now ones get clarity why the numbers are so high and will also remain high in April 2023.