Financial Planning Checklist- Part II

In Financial Planning Checklist- Part I (click here) we saw goal setting, Tax Planning & Managing Cash Flow’s we continue our checklist starting with Risk Planning.

• Risk Planning

There are two ways planning risk’s one is retaining the risk’s the other is to transfer the risk to insurance companies for example. If the risk of a stolen car worth 40000 is rate a person may decide not to take comprehensive car insurance & retain the risk. Another example is when a rich person whose monthly expense are covered by his investment’s & does not have any future liability like child’s education or marriage may decide not to take a life insurance & retain the risk.

Let’s look at the types of insurance to be considered & choose whether we wish to transfer the risk or retain it

1. Health Insurance

One of the most important types of insurance to have is health insurance. Your good health is what allows you to work and earn money and otherwise enjoy life. If you were to come down with a sickness or have an accident without health insurance you may find yourself unable to receive treatment or even in debt to the hospital.

2. Life Insurance

This type of policy is more important if you are married and/or have children. Your life is valuable because it is what allows you to work and earn an income to provide for your family. When you are gone you create an income gap which could put your spouse or children in financial trouble.
There are policies which combine the two like LIC Life Good Health Policy .For details look at product corner or click here

3. Property Insurance

One type of policy that for most people that is actually mandatory to have is homeowners insurance when you have a mortgage. If you borrow money from the bank to purchase a home they will require the asset to be insured. For many people this insurance premium is built into the mortgage payment. For many people their home is their greatest asset so it is vital to adequately protect it. However we recommend a separate term insurance to cover the loan .More on this in coming mailers

4. Auto Insurance

Another type of policy that is often required is auto insurance. Most states require by law that you have basic auto insurance. While it may be a law, too many people still drive around without it
The basic one is called third party insurance which is mandatory by law & the second optional one is the comprehensive one.

Investment Planning

After deciding on goals & managing the risks we come to investment planning.

• Risk Profiling

Everyone does not have the same risk appetite .For example a young person who has no liability & no need of immediate money can invest large sums of money in equity & can tolerate the negative return & wait till they turn positive.
Secondly a person struggling to meet the ends cannot invest in equity due to the risks associated with it. Hence risk profiling of the individual’s as well as product is a must

• Asset Allocation and Portfolio Construction

Golden rule never put all your eggs in one basket/.This rule easy to understand difficult to implement. Those who have earned in property wall always keep on investing in property. Similarly for other asset’s like Gold, Shares etc. One has to understand every asset growth has a life cycle

• Regular review of progress and Portfolio Rebalancing

Many make the mistake of initially investing in the wrong product & then make another mistake of not reviewing it. Always look at your investment’s at least once a year .My guess is that even Hindu ritual’s like Laxmi Pujan would be intended to bring this discipline in common person.

Coming Soon retirement planning, estate planning & more.

LIC’s LIFE GOOD HEALTH PLAN

A unique defined benefit Hospitalization Insurance Scheme

For you alone (Principal Insured) or all your family members including parents-in-law, from age 18 to 65 (75 for parents) and 3 months onwards for children
Cover up to 80 years for your family and 25 for dependent children

Hospital Cash Benefit (HCB) – for hospitalization = Initial Daily Benefit amount chosen by you (will increase by 5% every year and No Claim Bonus on completion of 3 years, and will be called Applicable Daily Benefit
Major Surgical Benefit – for major surgeries = 100 times of Applicable Daily Benefit
Day Care Procedure Benefit – for minor surgeries done within one day = 5 times of Applicable Daily Benefit
Other Surgical Benefit – for all surgeries not covered in above two benefits = 2 times of Applicable Daily benefit

Hospital Cash Benefit (HCB)
• For hospitalization of more than one day where surgery may or may not be involved
• Choose between Rs.1000 and Rs.4000 as initial daily cash benefit
• Increases by 5% every year
• Additional no claim bonus of 5% every fourth year
• Less than or equal amount for every additional member as per choice
• Can avail 30 days in year one, 90 days every year thereafter not to exceed 720 days total during the policy period
• Double the cash benefit for treatment in ICU

Major Surgical Benefit (MSB)
• For surgeries that require prolonged hospitalization
• 100 times of applicable daily benefit (including 5% increase and no claim bonus)
• Maximum annual benefit 100% of major surgical benefit per person insured
• Maximum life time benefit 800% or 8 times of major surgical benefit per person insured
• See annexure for full list of MSBs

Day Care Procedure Benefit (DCPB)
• For surgeries that may nor require hospitalization of more than one day
• 5 times of Applicable Daily Benefit
• Maximum annual benefit = 3 surgical procedures per person insured
• Maximum lifetime benefit = 24 surgical procedures per person insured

Other Surgical Benefits (OSB)
• Where surgery is required but does not fall under the MSB and DCPB category
• 2 times of Daily Benefit Amount for each person insured
• Maximum annual benefit = 15 days in the 1st year and 45 days in subsequent years for each person insured
• Maximum lifetime benefit = 360 days for each person insured

Other things to know:
• Optional accident benefit and term insurance benefit
• Initial premium fixed guaranteed for 3 years and revised every 3 years depending on age and health condition
• All members to be added at the beginning except where new members are through childbirth (next policy anniversary), marriage new spouse and parents in law within 6 months and risk cover starts from next policy anniversary)


Emergency Cash Facility:
Only for instances where the treatment is from listed network hospitals and for Major Surgical Benefits alone – 50% of the MSB credited to the bank account to be treated as an advance from the claim amount

Exclusions
• Pre-existing condition unless disclosed and accepted by the insurer
• Routine check ups, cosmetic treatments, epidemics, dental treatment, non-allopathic treatments, reopening of former surgeries, self-inflicted injury, dangerous sports, war, participation in illegal and criminal activities
Premiums:
• Yearly, Half-yearly, of monthly (ECS)
• 30 days of grace for all modes except Monthly where it is 15 days
• Cooling off cancellation 15 days
• Nomination available
• Approximate premium – Rs.1922/- (age 20) to Rs.3768/- (age 50) for males and Rs.1393 (age 20) to Rs.2849 (age 50) for females

What is different from Medi-claim

• Pre defined benefit- No reimbursement, but lump sum paid based on pre-defined benefit
• Not based on expenses incurred
• This will tend to indirectly reduce the Health care cost, which is rising due to cash less mediclaim benefit
• All benefit is dependent on HCB

Termination of Policy

• If policy is issued on a single life
1. Non Payment of premium within revival period
2. On death
3. On Date of cover expiry
4. On exhausting all the life time maximum Benefits Limits as specified above

• If policy is issued on more than one life

1. Non Payment of premium within revival period
2. On death or Date of cover expiry of the PI and if the Policy does not continue with the IS as the PI
3. On death or Date of cover expiry of IS after Policy continues with the IS as the PI after the PI dies or reaches his/her Date of cover expiry
4. On PI exhausting all the life time maximum Benefits Limits as specified above
Treatments in respect of Specific waiting period
1. Treatment for adenoid or tonsillar disorders
2. Treatment for anal fistula or anal fissure
3. Treatment for benign enlargement of prostate gland
4. Treatment for benign uterine disorders like fibroids, uterine prolapse, dysfunctional uterine bleeding etc
5. Treatment for Cataract
6. Treatment for Gall stones
7. Treatment for slip disc
8. Treatment for Piles
9. Treatment for benign thyroid disorders
10. Treatment for Hernia
11. Treatment for hydrocele
12. Treatment for degenerative joint conditions
13. Treatment for sinus disorders
14. Treatment for kidney or urinary tract stones
15. Treatment for varicose veins
16. Treatment for Carpal tunnel syndrome
17. Treatment for benign breast disorders e.g. fibroadenoma, fibrocystic disease

Financial Planning Checklist- Part I

A. Goal Setting

Step 1: Identify and write down your financial goals, whether they are saving to send your kids to college or University, buying a new car, saving for a down payment on a house, going on vacation, paying off credit card debt, or planning for you and your spouse’s retirement.

Step 2: Break each financial goal down into several short-term (less than 1 year), medium-term (1 to 3 years) and long-term (5 years or more) goals; which will make this process easier.

Step 3: Educate yourself and do your research. Read Money magazine or a book about investing, or surf the Internet's investment web sites.
Step 4: Evaluate your progress as often as needed. Review your progress monthly, quarterly, or at any other interval you feel comfortable with, but at least semi-annually, to determine if your program is working.

B. Manage Cash flows

Step 1: Pay Yourself First
By paying yourself first, you can ensure that you nearly always have a surplus to manage. Establish a fixed amount that you enter into your budget as surplus, or savings. It should be treated as a fixed, essential expenditure that cannot be changed. If, at the end of the month, your budget shows a deficit, then your first course of action is to find areas in your non-essential spending to cut.

A good option is a mutual fund sip or a recurring fixed deposit to discipline you in investment

Step 2: Balance Your Surplus
With a monthly surplus, the decision comes down to how to use it. This should depend on your budget and financial goals. If you have debt, you will want to commit a portion to accelerating your debt reduction. If you don't have a sufficient emergency fund, you will want to contribute to that so you can build up your safety net.

Step 3: Cheapen Your Debt
If your debt payments comprise a significant part of your monthly budget, you should consider finding cheaper forms of debt. If you are good standing with your credit card companies, you are will probably continue to receive offers to transfer your debt to low or zero interest cards. As long as you are not adding to your debt (and you shouldn't have to if you are managing your cash flow to a surplus each month), you can responsibly shift your debt to less expensive cards. This can effectively decrease your debt expense and add to your surplus.

C. Tax Planning

Step 1: Plan AHEAD
Most of the people plan their tax wither in the last month or when the company asks for the of the investment proof typically during the last quarter of the financial year, Planning at the start of the year helps avoid investment mistakes and is not a burden since investments can spread out during the year.

Step 2: Tax investment is like any other investment
Somehow people feel that when it’s tax investment it’s OK to invest in any product without evaluating the return’s or the benefits of the product .Treat tax investment’s like pure investments and invest thoroughly before investing


Step 3: optimize the deductions and exemptions
Know the tax rules .From the obvious ones like sec 80 C,80 D to not so obvious ones like 80 G donation 80 DD deduction for handicap dependents,

see all tax articles on tax :- click here

In the next part of “Financial Planning Checklist” we will see retirement planning, risk planning and more