Insights to defence veterans on personal financial management

Lt Col Prakash Joshi

As a veteran, serving defense personnel have a special place in my heart. In my second career, I have had occasions to know many veterans from all three services. Unfortunately, many are unable to lead a stress-free happy life due to financial worries, which could have been averted by early actions while in service. Financial planning for life has to start early. Earlier, the better.

Defense personnel retire at an early age and thus have longer periods of retired life. This is more so for those who are unable to find a second job or career.

Lack of financial literacy is a common weakness, more so in the rural areas, and service personnel are no exception. A large percentage of services intake is from rural areas.

Some useful inputs for awareness:

1. PM Jeevan Jyoti Yojana: 18-50 years of age. This is a simple term insurance of Rs 2 lakhs available by paying just Rs 436 per year.

2. PM Suraksha Bima Yojana: Age - 18-70 years. Provides one year of accidental death and disability coverage with annual renewal, insurance cover of Rs 2 lakh by paying just Rs 20/year.

Drawbacks of services group insurance:

All three services have group insurance schemes, but they have some drawbacks:

l It is compulsory and paid from salary.

l Cover is inadequate though increased periodically. (Thumb rule is 10-12 times your annual income).

l On retirement, insurance cover stops and the extended cover is grossly inadequate.

l Taking term insurance after retirement is costly. Many don’t realize the need.

l Present schemes are not pure term insurance so a high premium and inadequate cover. Looking at what you get back on retirement they are poor as an investment for retirement.

l Lack of awareness of these drawbacks gives a false sense that they are saving enough for retirement.

Some questions:

l Why should service personnel’s risk of life be not covered by the nation? Even future ‘Agniveers’ are to get insurance cover of Rs 48 lakhs.

l Why should the group insurance not be pure term insurance that continues till the age of normal retirement?

l Are our services best suited to manage and run the group insurance or can there be a better alternative?

Solution

Service personnel and their families are exposed to greater financial risk on retirement so they need to consider taking suitable term insurance while in service at a suitable stage, before retiring.

4. Housing loans and housing loan insurance.

While in service, it may suit some to take a housing loan, select a suitable place and buy a house. This will get paid from the rent partly or fully while in service itself, thus creating an asset and a place to live after retirement. Both the outstanding loan and the house need to be insured to cover the risk.

5. Health insurance for dependents not covered by Ex-servicemen Contributory Health Scheme.

Some serving personnel may have the liability of looking after close family members who are not covered by ECHS. A health insurance cover will be useful in such cases, and awareness of government health schemes such as PM AB JAY will help.

6. PPF Accounts and in-service provident funds.

Services provident funds are compulsorily paid on retirement, retirees thus do not get the full benefit of compounding as they retire early. At this stage, there are no comparable compound interest schemes available to invest this amount.

Solution

Individuals can open Public Provident Fund accounts while in service well before retirement and divide their contribution suitably among the service provident fund and the PPF. Thus, a matured PPF account will be available with a suitable balance when they retire.

Government can help by giving a choice to convert the part of the service provident fund into a matured 15 years old PPF account.