Buying-a-Term-insurance-Plan-is-just-half-the-job – Half Baked Financial Plan
So what do you find missing in the picture above. Moustache and shirt are half of what it should have been. Similar is the condition of financial plan of most of the people I meet. It is unfortunate to see that their death is necessary for the plan to succeed. With enough focus on advertisement insurers have been able to spread awareness of the importance of life insurance. However their campaigns cover just one part of the plan i.e. insurance , what about the money needed when individuals survive the term. Remember Buying a Term insurance Plan is just half the job
Simply shopping term plans is not going to get you to your goals it needs to be backed well with a plan to generate equivalent amount at the end of the policy term.
Before you proceed further answer this simple question, which is a better situation to be in?
- Die early without adequate wealth for your dependants
- OR Living long without sufficient money for yourself and dependants
If you agree that none of the above option is a good one read along, we are on the same page.
Now sample this half baked financial plan
- Rs. 1 Crore Life insurance GOOD
- No plan to generate 1 Crore money if you survive the policy term BAD in fact VERY BAD actually TERRIBLE
So is your family dependent on your death to full fill their dreams? So am I not right when I say buying a Term insurance Plan is just half the job!
Think logical, think complete, think positive. Simply shopping term plans is not going to get you to your goals it needs to be backed well with a plan to generate equivalent amount at the end of the policy term.
Steps to avoid Half Baked Financial Plan
- Identify your life goals e.g. child’s education, child’s marriage etc…
- Consider the amount of money you need to full fill that goal if it was to be full filled today
- Arrive at an inflation adjusted amount. You can read this post to know how to arrive at the inflation adjusted amount.
- Buy a life insurance policy for the inflation adjusted amount, this covers financial implications should something happen to you.
- Now depending on your rick taking appetite invest in a plan to generate equivalent amount of money at the end of the term.
- It is recommended to take a professional help in selecting insurance and financial products if you are not sure to be a expert in these things. OR if you will not be able to track progress on your investments year over year. It is important for the investment plan to be reviewed at least once a year for the progress made and making corrections if required.
Bonus TIP: I recommend separate insurance and investment plan for each of your financial goals. This leads to a much flexible and earmarked plan for goals. Makes tracking easier doesn’t it?
Optional yet Recommended step to avoid a half baked plan
- Understand your need for life insurance decreases as you accumulate wealth towards your goal.
- You can split your insurance policy into few smaller ones of varying duration as per your wealth accumulation plan
- Advantage: You can start surrendering policies as you accumulate wealth. e.g. If your life insurance need is Rs. 50 Lakhs and you have split it into 10 policies of Rs. 5 Lakh each, you can surrender a policy each time you have successfully accumulated Rs 5 Lakhs in your kitty.
- Remember: A term life insurance plan is a waste of money when you already have enough money in your kitty and a must buy if you do not have enough. Once you have achieved your goal review and see if there is a investment plan that is not yet covered and if you can re-use it to partner that investment plan. Surrender only if you cannot find a use of continuing the term plan.
Say no to Half Baked Financial Plan and get a complete plan.
Photo by lintmachine