During my young days, as young adults we used to take insurance only on endowment policies or ULIP only to the extent of tax planning needs of the year without considering any financial planning or investment needs. I never realized that endowment policies and ULIPs covering a very low sum assured would have put my family in great jeopardy. Insurance advisors never suggested term or pure insurance which can cover at a very low premium, a very large sum suitable for the family's needs and protection. I have been fooled into thinking and linking savings and insurance. I never got the best of returns also by investing for such a long time through the endowment and ULIP policies.
We may find it difficult to make
financial planning involving investments and expenditure decisions, partly because of the difficulty
in assessing our future needs and goals. This is also because it involves the
short-term cost of lowering our personal consumption. For making such decisions,
it is imperative to understand how people’s wealth-management and financial planning needs change over
the course of their lives.
As we face an inability to assess the
value of future income and savings which is compounded by the long time until
retirement and the tendency towards event-driven short term planning, it is common for
individuals to stay away from the financial decision-making process. Financial
planning models based on promoting products
that provide high commissions can lead to short-term planning models based on short sighted decisions that may not be in the best
interests of consumers. As a consequence, high providers and insurance advisors tend to view younger
customers as less valuable than those who are at retirement, whereas
commissions can lead to older customers.
One of the central axioms of a
holistic financial planning system is that it needs to incorporate all
material sources of net wealth, tangible and intangible. These include both
financial and human capital or simply termed as Humal Life Value.
Human capital or Humal life value represents the value of
a person’s future earning potential. It is an intangible asset that typically
dominates the personal balance sheet of younger people, whose yield is
represented by wage income. We calculate it as the present value of expected
after-tax wage earnings as follows:
Human Capital or Human Life Value
Human Capital or Human Life Value
= ∑n Current wage income × (1 + wage growth) ×
(1 – tax rate) / (1+ discount rate or investment rate)
i=0
i=0
Milliman
Research Report
Human capital depends upon a number
of factors, including:
A sample work sheet is provided below as table. Following this link you can work out your own Insurance needs for your family
Source: Holistic Life-cycle Financial Planning
You may contact us for an assessment and arranging for your actual Life Insurance needs.
Mukundan SN, CFA, CFP
mailto: reliable.planner@gmail.com
Mobile: 9789098720
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