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Live Smart - Cover your risks and create wealth

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cover you 3 risks of life

Embarking upon wealth creation through making investments is a smart thing to do. The younger we begin doing so, the better off we will be when we age. If we give our money a very long time to grow at a compounded rate, it grows to become a substantial amount (this is one of the ways how Warren Buffet got rich). While we do that, it is also important to cover life risks. This is how you do it-

1. Cover yourself against the risk of untimely death by buying a pure Term Life Insurance Policy.

-You pay a small annual premium and get a large Sum Assured for your dependents or beneficiary should God be unkind and there is untimely premature death during the policy term (20, 25, 30 …. years). You get nothing back (yes, zero) if there is no death.

-Such a policy when taken at a young age attracts a low premium. If you buy late, the premium shoots up, and you could pay much more than what you would pay in the first instance.

-Your dependents are assured of continuity of lifestyle and dignity be what may. If at any stage, your dependants become secured in life, stop paying the premium and stop the policy.

-No need to take this cover if you do not have dependents and will also not have any in future.

-The rich normally do not take this as family wealth/inheritance can support any situation, unless an individual wants to be self made and feels that risk can also come in the form of family dispute whereby surviving dependents are not welcome by the larger family.

2. Cover yourself against high cost of health care due hospitalization by taking health insurance. If your employer provides it (or you are included in your parents policy), assess whether it is enough, and take a top up policy or another basic plan if it is not. Also, cover your parents if they have no cover.

3. Start saving and investing NOW for your life goals (Child’s education, marriage, buying of house, world tour) and later golden years.

-Saving/investing should be a monthly habit. The formula to follow is [Earnings – Savings = Expenses]. Some people dig their own grave by following [Earnings – Expenses = Savings].

-This is best done by building a portfolio across asset classes. Real Estate and Gold as asset classes have a specific purpose and their own challenges. Do not mix them with investments.

-Over the long term, equity markets provide the best return.

-For those who do not understand or cannot track equities directly (most people are like this), a Systematic Investment Plan (SIP) into a Mutual Fund (MF) Portfolio does a very good job.

-SIPs can be automated by instructing the bank so that we do not spend any time on them. The MF portfolio should be reviewed every other year for changes if required. For those who cannot spend time on SIPs, or fear that they will take out all the gains say in 5 years time by breaking the SIP to let’s say buy something fancy, or are highly risk averse, endowment or investment oriented insurance plans provide a good safe option where one can buy in for a really long term and get locked-in (e.g. premium paying term 15 years, policy term 25 years).

Go live smart. Cover your risks and create wealth through investments.

By Atul Pandey, Principal Officer, Bimadirect.

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