"Be decisive. A wrong decision is generally less disastrous than indecision." ~Bernhard Langer
During my 6 years of venturing into financial consultancy, the most common aspects i observed is procrastination on financial decisions or not having an adequate plan in place. The reasons coud be
- Waiting for something
- Certainty : I'm not sure how long i'm going to be here (most common among NRIs, especially)
- Fear of making a wrong move.
- Nothing will ever happen to me.
- I can always start this anytime.
Often, I observed there are real costs to procrastination, be it with Insurance, Investment Decisions or Estate Planning. A stress-free decision taken during normal times could provide huge relief and peace of mind during stressful moments in the future. There are huge advantages of starting both risk and wealth management early, as you not only pay a cheaper price but also guaranteed protection.
Advantages of starting early and the power of disciplined savings -
What's constitutes a good financial plan?
- Protection for the entire family due to unforeseen events like Death, Critical Illness, Hospitalization etc.
- Managing your cashflow for today's and future needs.
- Maximize your investment returns by planning your taxes effectively and starting early.
- Planning for financial needs like emergency savings, kids education and retirement.
- Estate planning and causes you care about.
I believe in doing it right and doing it once. Financial decisions which requires review every couple of years would end up disastrous, so it's important to understand the bigger picture and plan once. The only thing would be to review the investment decisions to make sure you are getting the maximum returns. Let's delve a bit more into the details of each of above aspects for better planning.
Risk Management :
Health Insurance :
Most of us are dependent on the corporate cover for the health insurance, but many times we aren't aware of the limitations of those plans. It's good to consider these as bonuses but plan for a comprehensive independent cover which is adequate enough to cover for major hospitalization expenses.
Eg : 15 Lakhs and above for India
$200K and above for countries like Singapore, US
Critical Illness :
This is an income replacement option for major illnesses like Cancer, Heart Diseases etc. Hospitalization protection would cover the hospital expenses but this will help to cover the possible loss in income as the company will not pay beyond a certain point.
I would advise 3 years of monthly expenses as an adequate cover.
Eg : Monthly Expenses : $8,000.
Adequate Cover : $300K
Protection for Life :
This is similar to critical illness but require income protection for the family for a slightly longer duration. It's difficult to replace the emotional stress that family should go through due to unforeseen circumstances, but at least we could ensure financial security for the family. An adequate cover could be either for at least 20 years of monthly expenses or the kids start earning.
Eg :
For a 40 year old person, 20 years would provide an adequate cover.
Monthly Expenses : $8,000 / Rs 1 Lakh
Adequate Cover : $2 Million / Rs 2.5 Crores.
The most common thing i notice with life protection is the quest for returns on all insurance options. More often that not, it's impossible for people to meet the entire needs with an Endowment or Investment linked plan. The very reason of buying an insurance option is because of the probability of an unforeseen thing happening and the family should be really benefited in such a situation. I have seen many allocating considerable premiums but the total cover isn't adequate due to the nature of the plans. It's always advisable to cover for the maximum possible with pure term before you look at the endowment options, based on individual's affordability.
I shall cover the details of the wealth management aspects in the 2nd part of this post..
Cheers
Referrals Are the Best Compliment You Can Give Us
+65 8113 3272
Well said! Dinker
ReplyDeleteExcellent...
ReplyDeletegrt
ReplyDelete