I am 47 years old and due to a number of circumstances, including COVID, I currently have no savings.
My current financial situation is as follows:
Home Loan EMI: Rs 37,800 (payable in 3 more years)
Life Insurance premium: Rs 13,500/quarter (Rs 20 lakh cover)
Health insurance cover: Rs 5 lakh
After covering all expenses such as electricity, internet, maintenance and gasoline, I have almost nothing left. Can you help me with a plan for when I turn 50, especially when my mortgage is due?
A financial plan can only include monthly income, monthly expenses and current investments etc. It can be prepared in a way that includes all the relevant details. Moreover, the financial plan is not made for a single purpose and should be prepared taking into account various objectives and their relative importance and urgency.
Here are my recommendations based on the limited information provided. First, let’s consider your current life insurance, which is an endowment policy that covers your whole life. For life insurance, only a pure term plan should be purchased which is relatively cheaper and helps you cover higher risk. Therefore, I recommend purchasing a term plan equal to approximately 12 times your annual income. This is very important because if something happens to you before your home loan is fully repaid, your dependents will not have to inherit the home loan, which can be repaid by the insurance claim received. If possible, please purchase a separate term plan to cover the outstanding mortgage loan. Once the new term plan comes into effect, I would advise you to abandon the current Jeevan Anand policy and use the money to create an emergency fund.
Considering the cost of treatment during hospital stay, medical insurance of Rs 5 lakh is inadequate. Increase your health insurance to at least 10 lakhs. If financial situation allows, purchase individual insurance for all members of the family, otherwise you can purchase a family insurance policy.
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Since full details of cash inflows and outflows and the outstanding mortgage amount are not provided, it is not possible for me to make a recommendation on how to repay the house when you turn 50. You can use a mortgage loan as long as you purchase a maturity plan that covers this.
If you don’t have an emergency fund to cover any of your needs, I highly recommend creating an emergency fund of at least six months’ worth of your expenses. Once the emergency fund is built and your income also increases, you can plan to start saving through Systematic Investment Plan (SIP) in an equity mutual fund scheme for your other goals, including down payment of outstanding home loan.
(The investment expert’s opinions are his/her own. Email us your investment questions at email@example.com. We will answer your questions by our expert panel.)