The coverage amount of the health insurance policy need to be decided based on your health consciousness and your family health history among others
Get a PAN card:
Prabhu was a college student till yesterday. Today he has got a job. He has changed his costume from T-shirt and jeans to a formal wear with a tie. When he got his first pay cheque, his father advised him to save, while his friends wanted a party. Prabhu was totally confused what to do with his first salary. What are all his actual priorities? Let us help him by laying out a step by step initial financial plan for him.
PAN (permanent account number) card is an identity card issued by the Income-Tax (I-T) department. This card is useful in filing your I-T returns. Apart from this, the PAN card is very much useful in opening a bank a/c, demat a/c, investing in mutual funds and the like. The required documents for getting a PAN card is a passport size photo, address proof and an identification proof. You need to apply with either UTI (Unit Trust of India) or NSDL (National Securities Depository Ltd). These are the two approved agencies by I-T department for issuing PAN card.
Personal accident and disability insurance:
Almost every day you can find a news column about road accident. It may be your colleague, your distant relative, your neighbour, your friend or your classmate. The stories of such incidents give us a reminder that the accidents can happen to anyone. The impact of these accidents on ones working life could be huge. Some accidents could reduce our employability temporarily or permanently. Personal accident and disability insurance policies will cover the financial losses arising out of accident and disability.
You need to decide the coverage amount of this policy based on the estimated loss you may suffer because of accident. That is how much loss you may incur from employment temporarily or permanently because of the accident. This will cost you approximately Rs.1,500 per annum for a coverage of Rs. 10 lakh.
Most people don’t think about health insurance very often. It comes to mind first when a loved one is sick. Under health insurance, the insurance company pays the medical bills if the insured person becomes sick and is hospitalised. Health insurance can protect a family from financial damage in case of severe and serious illness.
You may have a health insurance from your employer however it may not be sufficient. Also an employer may cover the employee but not his family members. And moreover these policies are not portable and cannot be individualised if you leave the job. Employer provided policies cannot be transferred to another employer in case you switch your job. Also employer provided policies will give you coverage as long as you are employed.
Once you retire you may not be having coverage. It is really unfortunate that only after your retirement you need health insurance at the most. If you plan to take a fresh policy after retirement, insurance company will not cover the pre-existing diseases at that point in time. Though your employer provides a health insurance policy, it is better for you to take a separate health insurance policy at least with a small amount of coverage.
The coverage amount of the health insurance policy need to be decided based on your health consciousness, your family health history and the class of hospital you choose for treatments.
Generally as a beginner, there will not be any requirement for any life insurance. But if your parents are financially depending on you, you need to cover yourself with life insurance. As a breadwinner, today you are there for your family to provide a lifestyle. In case of any mishap to you, your family members should not compromise on their lifestyle. That is why it is advisable to cover yourself with life insurance if you have dependents.
But don’t fall prey for ULIPs (unit-linked insurance plans). Go for a pure term insurance policy. These policies give you a high coverage with low premium. The premium for a sum assured of Rs. 10 lakh will cost only Rs. 2,500 per annum approximately for a 25-year old individual.
Once you have completed the above obligations, you need to build an emergency reserve or contingency fund. One aspect of financial planning involves planning for situations where there could be a temporary break in one’s professional income. This could happen, amongst other reasons, due to ill health or could even be self opted. Such planning requires creation of contingency fund. The size of a contingency fund is linked to one’s estimate of what could be the maximum duration of such a break. For instance: Some people plan for the possibility of a three-month break while others for six months.
This emergency fund gives a psychological security to you. In case you need to quit your present job and need to search a new one, you can do that comfortably and confidently as you have an emergency fund for the intermediate period. You need not panic. If you have created a contingency fund, in the event of any emergency you need not pre-close your other investments and hence you avoid paying penalty or booking losses.
You can save under Section 80 C up to Rs. 1 lakh. You can invest in NSC (National Savings Certificate), PPF (Public Provident Fund), insurance premium and ELSS (equity linked savings scheme) mutual funds. You can give maximum allocation to ELSS mutual funds, as you are so young and in the beginning of your career.
You may have other goals like buying a laptop, pursue further education and go on vacation. You need to plan for all these goals. You need to keep in mind two things before deciding an investment. They are your risk tolerance and time horizon. How much risk you are afford to take and psychologically comfortable in taking? When do you need this money back? Based on the answers to these questions you need to choose the right kind of investment plan.
Plan out your work and work out your plan. Normally we don’t plan to fail, but we fail to plan. If you work on your financial plan, when your friends are partying, you will be definitely going to be retired richer than your friends.
The writer is the chief financial planner at Holistic Investment Planners
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