Before you begin planning towards your children’s financial goals, you should have a sufficient life insurance cover. This is the first product any parent should buy — in case of an eventuality, the family needs including the children’s education will be financially covered. The product: term insurance plan.
The policy you choose should be such that in case of death, all your liabilities (home loan is the big one), the one time expenses that the child will incur for education and marriage — in addition to the monthly expenses of your family — are taken care of.
“I recommend a basic term insurance plan as it is cheap and meets the immediate requirement,” said Amar Pandit, a Mumbai-based financial planner.
But how much? Experts suggest that the amount should be calculated through a needs analysis. For instance, if the annual income of a person is Rs 4 lakh, the sum insured for the term insurance policy should be at least seven times his annual income, although it differs on a case to case basis.
“The amount of cover needed should be equal to the amount needed to cover the monthly expenses, liabilities and the money required to meet your goals less the total assets,” said Navlakhi Lovaii, a Bengaluru-based financial planner and director of Financial Planning Standards Board India.
The second most important financial product is health insurance, as the cost of healthcare is rising and this is one of the biggest unplanned expenditures. Ideally, you should have a healthcare policy for each member of the family. Experts suggest that the formula to get a health cover is simple.
“Parents should be insured for a higher amount (Rs 5 lakh) while the children can be insured for a lesser amount of medical cover (Rs 2 lakh),” said Lovaii.