Over a period of time, as your income increases, you change your lifestyle. Moving to a bigger house, changing cars and gadgets, and expensive shopping become a part of your existence. There is nothing wrong with spending incremental income on yourself. But have you ever thought of enhancing your investments and insurance as well? Very few review their investments and insurance requirements periodically. It is not possible to always maintain a ratio of savings to income, but you must monitor it.
Life events necessitate reviews
Marriage and child birth increase your dependents. At such life stages, you should review your investment, life and health insurance. At the time of renewal of your health insurance, you must not only add the new member of the family, but also increase the sum insured. The health insurance cover that was sufficient for you as an individual or as a couple, may not be sufficient for a family of two / three members. You should consider opting for a family floater health insurance cover at the time of member addition.
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A relook at your life insurance needs is also necessary during such life events. You need to make sure your child’s education cost is taken care of in case of your untimely death. As a simple thumb rule, you should increase the term life insurance cover by the present value of your child’s education expense. So, in case of an uncertain event, your family can invest the proceeds from life insurance for the child’s education.
In terms of investment for a financial goal before marriage, if you were investing for your retirement, you now need to accumulate a corpus for your spouse as well. Also, once you have a child, you should start saving for the kid’s higher education. So, you need to top-up your investments accordingly. The earlier your start, the lesser the monthly savings required.
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Additional liability
When you take a home loan or personal loan, automatically your monthly fixed expenses will go up to the extent of the EMI. So, you should gradually top-up the contingency fund with an amount equivalent to 3-6 months of EMI.
Many of you simply consider the existing term life insurance cover as a hedge for the new home loan that you take. Even if you have term life insurance, you should increase your cover to the extent of the home loan so that this liability can be repaid immediately in case of your untimely death. The balance proceeds from life insurance can be utilised for your family’s ongoing expenses and other financial goals. So, you should simply increase your term life insurance cover to the extent of your home loan that you take.
Factor in inflation
Most of you review the performance of your investment portfolio regularly, but very few review the quantum of your savings. You should review your investments once a year and insurance cover every 3-4 years to see if they can beat inflation or not.
Your monthly outgo increases due to inflation, lifestyle change and ongoing children’s education expenses. So, you should top-up your contingency fund accordingly. Also, if you are investing in mutual funds via the SIP (Systematic Investment Plan) mode, you can consider increasing your instalments every year automatically by a fixed percentage or amount. This can help you enhance your investments automatically with your increasing income and expenses.
Even today, I come across many friends and relatives who have family health insurance cover of just Rs 2-3 lakh staying in a metro such as Mumbai. They do review the premium at the time of renewal by comparing it with ten different companies, which saves them some cost. But they ignore the fact that the cover they have is insufficient and might end up paying from their pocket someday. Medical inflation is something that is ignored by many. So, it is very important to review your sum insured of health insurance and see if it is enough to meet current hospitalisation expenses of major illnesses. You can enhance your health insurance by increasing your base policy cover itself or buying a super top-up cover at the time of renewal.
It is very important to enhance your investments and insurance periodically so that you do not overspend your incremental income and thereby do not remain underinvested and underinsured.