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.
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