Life insurance cover must be 12 times of yearly income
I have a good track record in repaying my loans, with a credit score of 812 points. But recently my CIBIL report reminded me of Rs 20,000 due towards an HSBC credit card, which I forgot to repay. I was under the impression that I had closed this CC account. With interest and penalty, the outstanding amount rose to around Rs 1.6 lakh, which is beyond my current financial capability to repay. If I settle my credit card by paying upto 40 to 60 per cent of the total due, will I have problems in the future in getting loans?
V.N. Sharma, Via email
Given the default reported in your credit report, a credit score of 812 is excellent and surprising. If you pay the bank less than what is outstanding, the bank may report the difference either as written off or waived. The word “written-off” has a negative connotation, but the word ‘waived” does not have any negative implications. As far as the possibility to settle the amount is concerned, I feel the possibility is high as the bank has written it off. You should request the bank that it report the amount forgone as “waived” while reporting to CIBIL. Please request for fresh CIBIL report within 45 to 60 days, once the amount has been settled. After this, it will take some time before you will be able to get new loan.
How much money would I need if I were to invest it in a way in which I can get a monthly income of Rs 70,000-Rs 75,000?
B. Krishnamurthy, Via email
This will depend on the tax rate that you pay. Assuming that an average tax rate of around 25 per cent, you will need to earn around Rs 1 lakh per month pre-tax to be able to get Rs 75,000 post-tax. To earn Rs 1 lakh pre-tax, you will need a corpus of around Rs 1.3 crore (assuming a return of nine per cent per annum). If you don’t need this amount now but in the future, then you should take into account the impact of inflation.
I am a 37-year-old businessman with an annual income of Rs 3 lakh. I am already having a Rs 9 lakh LIC cover but I do not have any term insurance. How much insurance cover do I require?
Rajiv Singhal, Via email
You require a life insurance only if you have any dependants. You should do a proper need based analysis for insurance requirements. You can seek unbiased professional help for doing this. You can also use the calculator on the apnapaisa site www.apnapaisa.com /insurance/ insurance-advice-india/ insurance-planner.html. At present, your existing insurance appears inadequate unless you already have large value assets, your spouse is earning or your expenditure on your own needs is taking up your entire income. A normal thumb rule is to have life insurance equal to around 10-12 times of your annual income.
Harsh Roongta is the CEO of Apnapaisa.com. You can send in your queries to moving-money@deccanmail.com
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