Embedded Value: Plan for the year with insurance as first step

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April 27, 2020 12:40 AM

Now is the time to assess where you are in relation to financial goals, tax planning & cash inflows.

Time is one of the inputs to the magic of compounding, the mechanism that makes investment or the savings grow rapidlyTime is one of the inputs to the magic of compounding, the mechanism that makes investment or the savings grow rapidly

Generally, people start thinking about investment as well as insurance during the last quarter of the financial year. For the purpose of investment, the cardinal principle is “sooner the better” because an investment or saving has the tendency to grow every day.

Time is one of the inputs to the magic of compounding, the mechanism that makes investment or the savings grow rapidly. Similarly, life insurance or any other insurance for that matter protects the buyer against the risk of unexpected adverse episodes which necessitates financial support either to the policyholder or to the dependants of the policyholder.

Start planning early
Preparation for a prosperous and secured tomorrow should begin at the commencement of the financial year so that haste is avoided and a well-considered decision is taken to create a reasonably strong and sound financial portfolio for one’s future needs and commitments.

Traditionally, financial planning by the government and various corporates starts in April in our country. At the individual level also, planning must begin in April to take maximum advantage of the various savings avenues and opportunities fto make it most tax-efficient. April is the right time to assess where a person is in relation to his financial goals and tax planning. In April, one should review financial commitments and likely cash inflow during the year. This should include review of all debts, EMIs on housing loan and on household goods, admission of child in some higher institution, etc. In order to protect the income of the family even in the worst of circumstances such as loss of life or earning ability and protect assets from mishaps and manage repair and replacement expenses, one must plan buying adequate insurance cover.

Opportunities and offerings
Most people keep postponing financial planning till the last quarter of each financial year and more often than not, they end up with regrets, because of hasty decisions that turn out to be wrong. Matured financial planning demands 360-degree view of the opportunities and offerings in the market and matching them with one’s requirements. At the same time one needs to understand tax benefits or tax implications in respect of each amount invested and even on the periodic or terminal withdrawals or proceeds.

Financial planning at the beginning of the year puts your finances under your firm control and gives the advantage of first mover in a market that gets cluttered by products that may look attractive but may not be the right for your needs. In financial matters there is not much scope for using the reset button, hence one must take the right decision and a well-considered one every time one buys a policy or any financial instrument.

Life insurance is often recommended as the first among all financial instruments as it creates a large umbrella of safety for the family of the policyholder with the payment of the very first instalment of premium. The cash value of the endowment policy comes handy in meeting short-term requirement of money. The policy accumulates wealth without any tax liability during the accumulation phase as well as at the time of collecting the maturity value. Certain policies take care of cash requirement in case of critical illness as well as during the tough time that follows permanent disability. All these conditions must be fully understood before one signs cheque for the first instalment.

The writer is former MD & CEO, SUD Life

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