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Posts Tagged ‘#Lifeinsurance’

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The Indian story is pretty simple and straight forward, as you grow you are told to study hard to find a good job. When you finally find that good job you work harder day in and day out trying to keep up with work pressure and your expenses. Then comes in Jack Ma announcing that he plans to retire early and says “I would rather die on a beach than in my office”. This one line is enough to reignite the dreams and fantasies to retire early and move to a quaint town away from the hustle and bustle of the big city. If this is your dream then read on to find out how you can retire early.

Rome was not built in a day and Jack Ma didn’t become a billionaire overnight. While you don’t have to wait to become a billionaire to retire early, you will need to save and create a substantial corpus to be able to take the plunge. This would require dedicated regular savings and beware, sacrifices will have to be made. You will have to try and save as much as possible which would mean spending less on your life style expenses, and trying to live a modest life.

  • List down all your goals-Just because you are going to retire early doesn’t mean you wouldn’t want to live a full life and realize you goals which could include travelling, sending kids overseas for higher education, buying your dream home etc. Yes you can achieve these goals and retire early too, but you will need a good plan which will take the cost of funding of these goals into account and adjust it against inflation.
  • Know your expenses-Most people especially the ones who live in a metro don’t know how much they spend on a monthly basis. Knowing your expenses is important for two reasons one it will help you know how big your retirement corpus needs to be and two you might need to cut down some unnecessary expenses to be able to save more. Take your life expectancy into consideration and your expenses till that time to calculate your corpus size.
  • Set the SIP for the 1stweek of the month- For most people the only investments that happen are either a minimum SIP started some time back or whatever is saved at the end of the month. This way you will never be able to retire, forget retiring early. Your savings and investments have to be planned and in line with the future goals that you have. So invest before you pay your bills. This is also what Robert Kiyosaki the author of “Rich Dad Poor Dad” believes is the secret to getting rich.
  • Ensure it’s not a one sided love story– Giving up a good lifestyle and a free hand on spending can take its toll. It can be very frustrating at times, that’s why its very important that your spouse supports this choice a 100% else you might find your self quite often at the receiving end which trust me is neither pleasant nor encouraging. From time to time you might need to remind yourself of your end goal and it should bring you back on track when you start to stray away. I would highly recommend not giving up on things that you love and keep aside some money for some indulgence every now and then if not regularly. Remember Jack Ma will retire at 55, so you will have to give yourself a considerable amount of time to prepare for the big shift.
  • Secure your self and you family-We can not stress enough on the importance of a sufficiently large personal life and health insurance. Its better to take one now while you are still young, this way the premiums will also be lower.

Albeit retiring early and getting away from the rat race and the pressures of the world, spending your days relaxing in a quaint house on the hills or by the side of a brook sounds so inviting, it can get boring and mundane after a while. Having spent so many years crossing one hurdle after the other throughout your life, doing nothing after a while doesn’t feel so enticing; so plan for a small business or some activity that would keep you busy in your free time or else you might find yourself missing and craving what you have left behind.

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Last Will

Talking and thinking about your own death is never pleasant. Given an option we all would like to live up to the age of 100, see our children get married, watch our grand children and great grand children grow. In India, there is a belief that if you die after seeing your great grandchild then you get a direct passage to heaven, a sure shot ticket to paradise. In a country like India with such a belief system it was difficult to introduce the concept of Life Insurance. With education and awareness Indians have come to accept the importance of insurance and talking about death is no longer a taboo.

There is, however, one area of life and death where still a lot more education  and acceptance is required and that is Will preparation.


Will the mighty estate planning tool

A Will is a legal document that states your last wishes regarding the distribution of your assets. You can specify in the Will who your beneficiary will be and how each of them would receive a part of your estate.

The beneficiary is a person or persons who could be your legal heir like your wife, children, mother or simply your friend, a loyal employee, a Trust or even a charity.

In the absence of a Will, your assets will get distributed as per the succession law of your religion. Some of the common succession laws in India are the Hindu Succession Law, Shariah law and Indian Succession Act of 1925 for the Christians, Jews and Parsis.

The Hindu succession law governs the Hindus, Sikhs, Jains and Buddhists. Under this inheritance law the mother, wife and children are Class 1 heirs and have an equal right to a deceased man’s assets who dies intestate (without a Will). The father and siblings are considered Class II heirs and become a beneficiary only in the absence of a Class I heir.

Under the Sharia law of inheritance, a testator can choose to whom he or she can bequeath 1/3rd of their entire estate and the rest is distributed as per the Shariah Law.

In some cases the distribution of assets is governed by the law of the state. In case you are a resident of Goa, then under the Goa Family law all Goans irrespective of their religion, ethnicity or linguistic affiliation are governed by the Portuguese Civil Code.


How do you know if it is the right time to prepare your
Will?

People understand the importance of buying life, medical and home insurance to protect their families but few prepare a Will for the same reasons. A life insurance could provide financial support to your family but in case of a dispute, your loved ones could be left without a roof over their head and claims from other legal heirs could delay the access to your insurance money and bank accounts.

For many, the idea of preparing their Will is triggered by an event. The event could be a premature death of a close family member, friend or a neighbour. In some cases, the person has witnessed the bitter legal battle between heirs. Some triggers come in the form of diagnosis of a terminal illness, accident or poor health. The idea of eminent death in most cases provides the much needed push for individuals to start considering and working towards preparing their own Will.


Where do you start?

A Will has to be well thought through. When prepared on an impulse without much consideration, a Will could have loop holes and some long forgotten assets could be missed out. When writing a Will, the testator should consider all legal aspects and state his wishes clearly to avoid it being contested or considered invalid.

A good way to start would be by listing down all your assets be it physical like your house, land, art collection, jewellery, or intangible assets like your trademark, patents or even goodwill. You could also take the help of your financial planner to ensure all the future financial goals of your loved ones also stay intact through the Will. Since it could take some time to get the Will authenticated, it is prudent to make provisions for your spouse and young children to receive instant access to some money in the interim. Again your financial planner will be able to strategize such a contingency plan.

The creditors of the deceased also have a legal claim over his estate. Ensure your Will has provisions for the same to avoid lengthy probate procedures which could delay the transfer of financial assets to your dependents. Also clear specify the distribution of assets among beneficiaries to avoid future conflicts.

For individuals with minor children, appointing a guardian who will be responsible for your young child through the Letter of Guardianship would be a good idea. As per the law, in the absence of a testamentary guardian (the one appointed by parents legally) the child can become the ward of the state and end up in an orphanage until the court decides on the guardianship. This will protect your children in case both the parents pass away.

Some individuals who could be terminally ill or suffering from a condition that could leave them incapacitated in the future, creating a Springing Power of Attorney could give their family access to financial assets to pay for various expenses. In the absence of a POA, even your spouse might not be able to access of your money.


When to re-look at your old
Will?

These are some young and old individuals who would have already prepared their Will. Just as with your financial plan which you review on a regular basis, you should review your Will from time to time to keep up with the changes in your life. Here are a few scenarios under which you should re-look at your old Will:

  • Major life event like birth or death in a family.
  • If you have bought or sold a property.
  • If you have taken on a debt or you are a guarantor to someone else’s debts.
  • If you have minor children and have not named a guardian in your old Will.
  • If you wish to create a Trust that comes into action on the event of your death.
  • An unborn child can also be named as a beneficiary.
  • Separation from a spouse might want you to change your Will
  • If you are recently diagnosed with or have contracted a incurable disease then you might want to consider a living will that considers your life and death wishes as legal.
  • In case of an inter-religion marriage the succession law of your spouse upon their death would decide how your assets passed on to them reach your other heirs including children.

You could also consider creating an Education Trust, Minor Beneficiary Trust to meet your child’s educational and future needs. If you are responsible for a family member with special needs then you could provide for them through a Special Needs Trust or pass on your inheritance directly to your grandchildren by skipping a generation through a Dynasty Trust.

As we have seen that the Will can be a very powerful tool in the execution of your last wishes and to protect your loved one’s from despair and legal battles, we shouldn’t delay in preparing one since life is

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uncertain inflowsI have uncertain inflows – how should I invest?

Money may not be the end in itself, but for most, it is a means to achieve many necessities as well as aspirations. Therefore it becomes important how an individual plans to use his/her hard earned money. More so when the inflows are not necessarily streamlined and consistent like that of an employee. When your personal income is linked to the performance of your firm, a well thought out plan could be all the difference between financial stability or having to make huge compromises.

Being a HR firm owner can have its ups and downs. By following certain simple financial planning steps, you can have some peace of mind with regards to your personal financial situation even though you may not have a steady income:

  1. Contingency Fund: This is a basic yet most critical part of any financial planning for a self employed individual. You never know when your next pay check may come. So it pays to prepare for the worst. Thumb rule has always been 3-6 months worth of household expenses to be kept aside in highly liquid assets as an Emergency Fund. Yet we feel that when it comes to a owner/manager, it should be at least 6-9 months worth of basic expenses!  A handy tip, do not forget to count any committed payments such as EMIs and any insurance premiums when calculating the corpus. 
  1. Risk Planning: or in lay man terms, Insurance Planning. This could be a considered an extension of contingency planning, but for very specific events. Following are the types of insurance policies one must always have at all times: 
  • Term Life Insurance Plan: The plain vanilla term plan is exactly the only kind of life insurance anyone should purchase. Handy tip, to know the amount of cover you might need, start with at least 15 times your annual revenue/income. Don’t forget, insurance should never be mistaken for an investment!
  • Individual Health Insurance: If nothing else, an individual health cover to at least cover your own standard hospitalization expenses is a must. Financial independence means you should be able to fend for yourself at the very least, even if it paying for your own recovery. 
  • Critical Illness Policy: Contracting a serious illness or undergoing a major surgery would mean a drag on your finances as well as a dent on income. Such financial risks can be mitigated by procuring a critical illness policy. Such policies usually provide for a lump sum payment to tide over the finances needed, in case of being diagnosed with a critical illness.
  • Personal Accident Policy: Another source of financial risk associated with most professionals is loss of income/job due to an accident. Similar to a Critical Illness Policy, this policy provides a supplement alternative income for certain weeks of disability depending on the terms of the policy. This can be used to either pay off medical expenses or help in taking care of household expenses during the recovery period.

While more types of insurances are available, it is essential that this set is acquired first. Having your Contingency funds and Risk Planning in place makes a strong base for you to venture into the world of investments.

  1. Planning for Retirement: Retirement, or as financial advisors put it, Financial Freedom, is something we all aspire for. The dream of not working for the sake of survival is a goal we all work towards. Yet having an uncertain income can make such a dream feel a little distant more often than not. And while retirement always seem likes a far off goal in comparison to what seem like more pressing concerns, it should ALWAYS be top priority! Underestimating your retirement financial needs can be the one of the biggest mistakes you could make and more often than not, people realize it far too late to make any significant course corrections. Even if you have to start with small amounts, it is the consistency and discipline that will ultimately help you reach your goal.
  1. Financial Goal Planning: Only after the first three steps are in place, is when you should really consider planning for the rest of the commitments/aspirations that you might have. As with any goal planning, the two critical aspects to consider are time horizon and future value of the goal, not current value. If you get these two right, the rest becomes clear.

For any individual with uncertain income flows, planning can become easier if you can channelize your savings, prioritizing in the above order! It is essentially in this area where the difference between financial planning for an owner of a firm/business versus that for an employed individual lies.

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