5. How important is it to buy a top-up policy?

Ans:

Yes. Personal plan is a great alternative to corporate policies -- even if you work for large companies. Corporate policies come with limited coverage with limited or no option to customise it. In fact, your coverage can even decrease over time.

Plus, there's no lifelong renewability once you exit the group. Thus, when you actually need the plan, that is, in your post-retirement phase, you would have to opt for limited coverage available in senior citizen plans.

Also, individual health insurance plans give the flexibility to choose the right kind of protection and better coverage. You can customise your policy, such as selecting the cover according to your needs. It ensures lifelong renewability and additional coverage options, such as hospital cash benefits, pre-existing conditions coverage, etc.

Proper health insurance planning includes high coverage of personal health insurance plans with lifelong renewability over and above group plans!

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Ans: Hi Pradeep, yours is a legit concern. It would be best if you take advice from a professional person or company – having the necessary qualifications -- after discussing your issue with them.

Insurance is each to its own. Depending on your concerns and requirements a professional service provider will be able to give you the best advice, whether to tweak policy amount or switch to top up.

Ans: Insurance-cum-investment schemes
Insurance-cum-investment schemes (ULIPs, endowment plans) offer a one-stop solution for insurance and investment needs. However, they might not be the best choice for pure investment due to:
• Lower Potential Returns: Guaranteed returns are usually lower than what MFs can offer through market exposure.
• Higher Costs: Multiple fees in insurance plans (allocation charges, admin fees) can reduce returns compared to the expense ratio of MFs.
• Limited Flexibility: Lock-in periods restrict access to your money, whereas MFs provide more flexibility.
MFs, on the other hand, focus solely on investment and offer:
• Potentially Higher Returns: Investments in stocks and bonds can lead to higher growth compared to guaranteed returns.
• Lower Costs: Expense ratios in MFs are generally lower than the multiple fees in insurance plans.
• Greater Control: You have a wider range of investment options and control over asset allocation to suit your risk appetite.
Consider your goals!
• Need life insurance? Term Insurance plans might be suitable.
• Focus on growing wealth? MFs might be a better option due to their flexibility and return potential.
Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

Ans: When determining the appropriate amount of term insurance coverage, consider several factors to ensure your family's financial security in your absence. Here’s a detailed approach to help you decide the right amount:

Understanding Term Insurance
Term insurance is a pure life insurance product that provides coverage for a specific period. If the insured person passes away during this term, the beneficiaries receive the death benefit. It's an essential part of financial planning, ensuring your family’s financial stability.

Factors to Consider
Income Replacement
Your term insurance should be enough to replace your income for a sufficient period. A general rule of thumb is to have coverage of 10 to 15 times your annual income. This ensures your family can maintain their lifestyle and meet daily expenses.

Liabilities and Debts
Consider your outstanding debts, such as home loans, car loans, or personal loans. Your insurance coverage should be enough to pay off these liabilities, preventing financial burdens on your family.

Financial Goals
Include future financial goals like your children's education, marriage, and other significant expenses. Ensure your coverage can fund these goals even in your absence.

Existing Savings and Investments
Take stock of your current savings and investments. The insurance coverage should complement these assets, ensuring comprehensive financial security.

Inflation
Factor in inflation, as the cost of living and expenses will rise over time. Ensure your coverage is adequate to meet future needs.

Calculating the Coverage
Human Life Value (HLV) Approach
The Human Life Value approach calculates the economic value of your life, considering your current and future income, expenses, and financial goals. This method provides a detailed estimate of the required coverage.

Expense Replacement Method
This method involves calculating your family’s annual expenses and multiplying by the number of years you want to provide for. It ensures your family’s daily needs are met.

Example Calculation
Let’s assume you are 44 years old, earning Rs 20 lakh annually. Here’s a breakdown of the calculation:

Income Replacement: 15 times annual income: 15 x Rs 20 lakh = Rs 3 crore.
Outstanding Loans: Home loan of Rs 50 lakh, personal loan of Rs 10 lakh = Rs 60 lakh.
Children’s Education and Marriage: Rs 50 lakh.
Total Required Coverage: Rs 3 crore + Rs 60 lakh + Rs 50 lakh = Rs 4.1 crore.
Choosing the Right Term Insurance Plan
Coverage Term
Select a coverage term that aligns with your retirement age or the age until your financial dependents are self-sufficient.

Premium Affordability
Choose a plan with premiums that fit your budget. Ensure you can maintain the policy without financial strain.

Additional Riders
Consider adding riders like critical illness, accidental death, or waiver of premium for enhanced protection.

Periodic Review
Regularly review your term insurance coverage. Life events like marriage, childbirth, or significant financial changes may require adjustments to your coverage.

Final Insights
Choosing the right amount of term insurance coverage is crucial for your family's financial security. By considering your income replacement needs, liabilities, financial goals, and inflation, you can determine an adequate coverage amount. Regular reviews ensure the coverage remains relevant to your changing financial circumstances.

Best Regards,

K. Ramalingam, MBA, CFP

Chief Financial Planner,

www.holisticinvestment.in