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## 144: Time to Quadruple

In the article “* The Number 72*“, we learnt how to guesstimate the time required for an amount of money to double if invested at a defined rate of annual interest.

*Click here to access the article.*

Then, we learnt about the number 114 in the article “* Triple Your Money*“, where we learnt about the time required for an amount of money to triple at a specified rate of interest.

*Click here to access the article.*

*Picture Credit: commons.wikimedia.org*

Now, in the last article in this series, we shall become aware of another power number – the number 144. And as the article suggests, it shall help guesstimate the time required for an amount to quadruple i.e., become 4 times its original value for a given rate of interest. And if you have followed the previous articles, you already know the formula:

(Number of years to quadruple) x (Rate of Interest p.a.) = 144

So, if you have a 1000 INR note, you know that it would become INR 4000 at 12% rate of interest in?

Yes, 12 years. Simple, isn’t it?

Hope you find this trick useful.

* Note*: This is an estimate to be used to make your life easier and does not give an answer accurate to the number of days. Also, the higher the expected rate of interest, the less accurate does the formula become but still you can use it safely!

If you like this trick, like and share this article. Comment if you know more such tricks.

## Getting Insured [Part II]

In the last article, we saw how Aadeshna calculated the returns on her mother’s “* Cash Value*” insurance policies.

*(Click here to access the article.)*And she was shocked to find that not one of the multiple policies her mother had subscribed to gave returns in excess of 6% which meant that the money invested would only double in 12 years (calculated using the “

*“).*

**Rule of 72**

Now, what are “Cash Value Plans”?

The Cash Value Plans are those insurance policies which typically have * two* parts:

- Risk Cover
- Savings Component

The * risk cover *part provides you with the death benefit. Say, a policy holder has an insurance coverage of INR 1 crore. That means that the risk coverage is of 1 crore implying that in the event of death, the nominee of the policy holder – typically a family member – would get INR 1 crore.

And the * savings component* ensures that you receive a a lump-sum at the end of the policy coverage period or get an annual survival benefit every year. Sounds great, right?

But it is not.

This brings us to lesson number 2 *(Click here for lesson 1)*:

Keep It Simple, Stupid! – the KISS principle designed by the US Navy in 1960

Insurance companies, like any other company, exist to make profit. They are not into charity. That you would receive a lump-sum or an annual survival benefit does not mean that the insurance companies are paying you out of their own pockets. They are making you pay for it. How?

**Through your premiums!**

This is why premiums of cash value plans are on the higher side as compared to the premiums of the useful “* Term Insurance*” plans which just do one thing:

**. Typically, the premiums of cash value plans are 2 to 3 times the premiums of term insurance plans.**

*provide risk coverage*And it is the difference in the premium amounts which is used to provide you with the cash-back at the end of the coverage period.

To know more about the differences between cash-value plans and term insurance plans, wait for the next post!

* P.S.*: The motive of the post is not to show that getting insured is not necessary. That is absolutely not true. Getting insured is imperative. But there is a better way to get insured which shall be discussed in the subsequent posts of this series on

*.*

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*Picture Credit: www.telegraph.co.uk*

## Getting Insured [Part I]

One Sunday afternoon, Aadeshna’s mother brought up the topic of the investments she had made in her lifetime. Her mother had retired last year from the Indian Post Office. Most of the investments were in the form of life insurance policies which were going to mature within the next 3 to 5 years time-frame along with some recurring deposits and fixed deposits. Her mother wanted Aadeshna to calculate the returns on the insurance policies. Aadeshna had recently graduated from one of the best B-schools in the country. Although not an actuarial professional, she had a clear understanding about Internal Rate of Return (IRR), Modified Internal Rate of Return (MIRR) among other concepts all finance professionals are privy to.And Aadeshna was curious to try them out!

*Picture Credit: http://orixinsurance.com/*

She did the math. Not one of the half dozen policies returned more than 6%. 6%! What is 6%? Doubling the money in 12 long years? (Click here to know how she calculated that in a jiffy!)

She explained to her mother how she could have enjoyed a better return, more liquidity and bigger life coverage if only her mother would have known that:

Insurance is not an investment. It is an expense. A necessary one, but an expense nevertheless.

That is lesson number 1, people. And while we understand it when we pay the insurance premiums for our cars and motor-bikes, somehow the cash value plans are able to fool us into believing that they add more value to our lives, when in reality there are better options available.

What are Cash Value Plans, you ask?

* Clue:* Aadeshna’s mother had opted for Cash Value Plans.

* P.S.*: The motive of the post is not to show that getting insured is not necessary. That is absolutely not true. Getting insured is imperative. But there is a better way to get insured which shall be discussed in the subsequent posts of this series on

*.*

**Insurance**Like the post? Help us know how we can help you better.

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## The Number 72

Often we see investment advertisements which promise to double our money in (say) 9 years. Sounds good, doesn’t it?

Or don’t you wonder sometime, in how many years your money would double, if a Mutual Fund has been historically providing a return of 12%? Or, if you have INR 50 lacs, given the inflation rate of 8% (say), in how years would its value reduce by half in present terms?

*(Answer to the three questions above are given at the end of the article.) *

The answer can be found out easily with a simple trick:

(Number of years to double) x (Rate of Interest p.a.) = 72

So, if someone promises you a rate of return of 9%, know that your money would be doubled in 8 years. If inflation is somewhere near 6%, know that your current kitty would be diminished by half in 12 years if not invested elsewhere.

Do the math!

If you like this trick, like and share this article. Comment if you know more such tricks.

Happy learning!

Answers: 8%; 6 years; 9 years.

**Picture Courtesy**: https://in.pinterest.com/pin/53902526760366711/

* Note*: This is an estimate to be used to make your life easier and does not give an answer accurate to the number of days. Also, the higher the expected rate of interest, the less accurate does the formula become but still you can use it safely!