Financial planning 101 - Step 5 - Insurance
The continuing series around financial planning 101.
Step 5: Insurance
Insurance is one of the other key elements when it comes to you financial plan.
What do you need?
The world of insurance has an incredible range of products for a wide spectrum of needs. When it comes to what you need, I would restrict it to 2 main items
Term Insurance
Medical Insurance
Everything else is cherry on top. You could consider other insurance needs as you see fit. But these two are the key ones to consider.
How much do you need?
Term insurance
Ideally the coverage should provide adequate support for your dependents if anything untoward happens to you. If your FIRE figure is 5 crore (50 million) for example and you have saved up 2 crores (20 million) then your term insurance should be a minimum of 3 crores.
Medical insurance
This is highly dependent on the country and the medical costs that are involved. So for a country like India, you should consider something between a minimum of 10 Lakhs (1 million) to a maximum of 50 Lakhs. If you have any family history of cancer or other such illnesses, consider critical illness cover on top of regular insurance.
Insurance is not investment
The most important things when it comes to insurance is to treat it as a line of credit or guaranteed loan that you don’t have to pay back instead of an investment. You should not be looking to make money from your insurance.
There are tons of different options to make money via investments. Do not fall for ULIP products peddled by your bank RM or sales guys. They are very bad options for insurance and even worser option for investments. The only group that benefits from an ULIP is the sales team that sold you the insurance.
Conclusion
Since the insurance needs are different for different people and options vary drastically across countries, I don’t have any recommendations from a particular provider to offer. So consult with a fee only financial advisor and not your bank RM or sales team.
Let me reiterate
Insurance is not investment and ULIP is neither good investment or good insurance.
Good luck and Happy Investing,
up next
Step 6: Goal planning
