Financial Planning – Goal Setting And Life Insurance In this lesson we will touch upon goal setting and fully understand life insurance. We all know what we want, but do we truly know the difference between our wants and our needs?Usually we do not prioritize, meaning we do not plan for the important things first and create space for the nice-to-have goals. Financial Planning – Goal Setting And Life Insurance
Financial Planning – Goal Setting And Life Insurance
You probably have a friend who wants to buy a flat, this is a wish and not a goal. A goal is when you have a decisive plan of action one step after the other, planned years in advance to buy that flat. The plan will also account for unfortunate events to make sure you can reach the goal within reason. That my friend is a goal. Decisive course of action, objective and reasonable. Lets categorize our goals into three parts Short term, intermediate and long term goals. Lets also make a list of committed goals and nice to have.
We have to be realistic here. You can update the goals after a year if you wish. You will notice in the short term, there aren�t as many committed goals to meet in the beginning. As the time frame increases to intermediate, relevant in the next 3-8 years we have life stages we havent even thought about yet. Like college fees for your child. In the long term we have goals for a home, car or a passive income. Create your goal list now in your personal finance diary before moving ahead. Unexpected Demise To meet the goals lets suppose we set aside Rs 6,000 per month. The savings grow to 1.8 Lakhs in two years when all of a sudden the main bread winner of the family dies.
I know it is a grim thought, but give a moment to think about the possibility. Will the family be able to cope? This is what we will address next Life Insurance Life insurance companies will pay your family incase of your untimely demise. It does not give a return, if the policy holder survives there is no payout. Most of us do not have life insurance; we think paying a premium is a complete waste since we do not earn any returns. This is incorrect. Lets fix this thought through an exercise. Time to open a fresh page in your financial diary and fill this out.
Title the page Taking care of my family:
1. Our current expenses are estimated to be about Rs. ___ per month.
2. Over the next 10 years that amount totals to Rs._______.
3. If I pass away they will get their income from __none___ which amounts to Rs _____ per month.
4. I want to make sure my parent/wife is comfortable, incase I am not around they will receive an income of Rs _____ per month.?
5. I want my brother/children to have a great education, this total cost including living expenses is Rs______ until post graduation.?
6. Incase of a medical emergency like surgery or hospitalization my parents/wife will receive money from _____. Make sure your answer is as detailed as possible, take your time. Once you are done, sign at the bottom. At this point, if you are uncomfortable, then that is good it means you care but never did the mental exercise of thinking of such an adverse possibility. What if you died? will your family be comfortable for the next decade? Now that you are all rattled up, lets begin by understanding how life insurance can give us peace of mind. Term Insurance There are different types of insurance in the market. Term Insurance is what you are looking for. Its is the simplest and most affordable. Term insurance bought online will usually be cheaper and assure a fixed sum of money to the beneficiaries of the policyholders. If the policy holder survives there is no payout.
Usually it will not cost more than 1-2{0200a47673485610640b637afa5ff10abec096eabb6904aec7ef83f08b4209ae} of your yearly income. Term insurance is also referred to as life insurance, they are the same product. A 30 year old, non smoker can get 1 crore cover for about Rs 900-Rs 1,000 per month. I am sure that is a price most of us are willing to pay for the security of our family. Remember, life insurance gives cash, a common denominator to acquire all assets. I am sure you have property, FDs or gold that serve as security. But cash is liquid, can be used immediately and is versatile pay for their living expenses or assets they may want to acquire. How much Insurance do you need?
The sum insures basically should allow the basic expenses and committed goals to be met. If the sum is invested, it should give a regular return to be able to meet lifestyle requirements. A good rule of thumb is about 12 times your annual income. Is Insurance an unnecessary expense? Most will not buy life insurance thinking it is an unnecessary expense, rationalize they are healthy and have enough savings. In other words they do not need the safety net of insurance. Lets take the same logic and apply it to schools and hospitals. Schools spend lakhs of rupees on sprinklers, fire extinguishers and safety electrical equipment every year.
This is obviously done to safeguard in case of a fire. That is the keyword, in case say the school offered a Rs. 500 discount on school fees to get rid of this unnecessary expenditure, do you think the parents would agree? Of course not! We care far too much for our children to take any risks.Insurance is an investment in case of untimely death. Life Insurance is not expensive.I am sure you are thinking, 30 years worth of premiums is A LOT of money. What if you just saved and spent it later? Actually this thinking is incorrect. Rs 7,000 premium a year paid for 30 years is only 2.1 lakhs. The insurance will cover will be 50 lakh rupees. Now let us say, this 2.1 Lakh is returned to you 30 years from now that will mean 1 family vacation. Now, does it seem clearer, what would you choose? The cost of a family vacation or an insurance to guarantee your family is security. I hope that choice is obvious. In the next lesson we will go into the depth of how to purchase insurance, and even some fine print you should know.
