I've been looking around to buy some life insurance: about time one thought of financial security for the family....

Here's what I need: insuring my family and perhaps me against loss of income. That includes any event that impacts my earning in my profession.

As I'm doing my research, I found some interesting points:

• There is a huge variation in premiums between companies. For a 25 year term, 20 lakhs coverage at 30 years of age, it varies from Rs. 6000 to 12000! In this kind of business, why would anyone go for the higher premium? All companies are well established, and all have similar contracts. When asked this question, the costlier ones have little to say except the vague 'our service is better'. That means nothing: anyone can claim that!
• The concept of disability insurance does not exist. When asked about that, people offer the ADD (accidental death and dismemberment), which hardly covers disability.
• Riders: Generally, they offer three: ADD, critical illness, and WOP-(withdrawl of premium, I think). I don't quite understand any of them.
• ADD: In this case, you get double the face amount in case you die in an accident. If the idea is to cover death which comes without warning, it probably makes sense. But I think they don't cover all such cases, for instance, terror attack or natural calamity. If that's the case, what's the point of buying a higher cover for accidental death?
  
• ADD: Moreover, why not allow me the option of buying dismemberment insurance without being forced to buy accidental death as well?
• critical illness: This one seems to have wandered into the wrong business. They pay out the cover if you suffer with a list of pre-defined illnesses. This includes non-systemic ones such as heart attack. You might not have lost your income. This sounds totally like a health insurance product! Actually, not even that - they are not covering treatment expenses: just paying out the cover!
• WOP: Ensure that your cover remains if you stop paying premium. Now why would anyone need this? The only situation where you will stop paying premium is if your income stops. And if your income stops, life insurance is meaningless to you!
• It is extremely difficult to get insurance agents to understand that I'm only interested in risk cover: they keep throwing investment cum insurance policies at you! Some even insist that in their plan, risk cover is 'free'!!! A lot claim that in a given investment plan, I would get minimum 10-12% returns. And the way they say it, one would reasonably assume that it is guaranteed return, and that's what they want you to assume. But mention that word, and the truth comes out.

All of these suggest to me that the insurance business in India has a lot of growing up to do - it is still very early days.

And I'm going to have to live with the risk of a long term disability...

These past couple of months, the wife's been talking only one thing - invest in real estate. And she's not alone, with backing from both sets of parents. We already have a flat, and are currently paying the EMI for the loan for it. Currently, we are looking at 3-4 opportunities, and she actually wants us to invest in two of them!

All of them have the firm belief that in real estate, one never loses. This belief, along with the same belief for gold, seems totally unshakeable and firm. It seems to be etched in stone, with metal cast into the etching, and a force field put around the whole thing.

All efforts to show them the other side seem meaningless. But there ARE a lot of arguments against investing too heavily in real estate. Here are a few, in random order:

• Real estate doesn't have a secular upwards trend. This rediff.com article mentions some previous crises in UK and US. But why look outside - we have had bubbles in our metros as well - I've seen one in Delhi around the year 2001.
• With easy and cheap credit available, and tax concessions, a huge number of people are investing in real estate - very often in more than one property. That's speculative investment, which means it becomes a zero-sum game.
• In my parents' generation, for some of the reasons mentioned above, and due to much lower purchasing power, most people were lucky if they could purchase a home before retirement. Result - relatively little speculation, and a largely secular upwards trend.
• Real estate is a product that has little inherent value - it is driven purely by supply and demand, and it's inherent value doesn't change with time. Combine this with the fact that things are changing very fast these days in India, specifically infrastructure. For instance, there were no takers for Dwarka in Delhi till the Metro line was announced. It took the Dwarka market onto a totally different graph. In the NCR, the metro is and will continue to strongly impact real estate. Similar arguments hold true at other places - four laning of highways, expressways, the hype around IT parks and SEZs in various cities.
• Unfortunately, there are no means available today to invest small amounts in real estate. Even for the richer category of salary earners (in the software industry), a single home is often at least 2-3 times the gross annual income. A second, or third investment therefore, takes you out to almost 10 years of gross income. I agree that actual investment is much less, because it's all on loan, but you are screwed if you get caught in a bubble, because you will need to hold on much longer to recover from the loss! If only they had real estate mutual funds for the small investor!
• While multiple EMIs might not make a huge dent on your monthly savings, the loan duration would definitely be long in that case, increasing risk for you all around - risk of rising interest rates, as most loans are floating rate; but more importantly, liquidity risk. If you end up needing a biggish amount of cash in a hurry, you will need to hurriedly sell off your property. Given the relative lowe liquidity of real estate investment, you could end up losing. Finally, the more loans you take, the bigger the impact on your family in case something happens to the earner. Very few people end up insuring their home loan against loss of life of the earner.
• Someone told me a good rule of thumb to find if real estate prices are out of whack - rental income should give you 5% annual return. At that rule, my under construction flat in Indirapuram near Delhi probably just about makes it at my purchase price, but the current market price is way out of line! The same seems to be true in a number of cities in the country today.
• As of today, we hear warnings almost every day - fom the RBI about banks' exposure to housing sector lending, to chairmen of housing finance companies and so on about a possible bubble.
  

Having said all that, probably will end up investing in two more properties, keeping in mind the following:

• Ignore the metros, and look at tier 2, upcoming cities. Examples for me: Jaipur, Chandigarh ( though these two have had huge price increases in the last year), Agra.
• Diversify by investing with others: invest in two places, with a 50% share in both, with close relatives: parents or siblings picking up the other part.