Family finance: Rout has to cut back on large number of expensive traditional life insurance plans

D. Rout, 53, stays with his homemaker wife and 20-year-old child in his own house in Hyderabad. He brings in a monthly salary of Rs 3.27 lakh and has a net worth of Rs 2.4 crore. His portfolio comprises real estate worth Rs 80 lakh, equity worth Rs 41.5. lakh in the form of mutual funds and stocks, debt worth Rs 1.19 crore in the form of EPF, PPF, fixed deposit and debt funds, and Rs 25,000 in cash. His goals include building an emergency corpus, saving for the child’s higher education and wedding, buying a car and a house, and retirement. For now, he will have to forgo the goals of buying a car and a house due to lack of investible surplus.

Financial Planner Pankaaj Maalde has calculated an emergency corpus of Rs 7.59 lakh, which is equal to three months’ expenses. For this, he will have to allocate his debt funds and fixed deposit, which should be invested in an ultra short-term or money market fund. The corpus should be increased to six months’ worth of expenses at the earliest.

Portfolio

Rout wants to save Rs 26 lakh for his son’s higher education in four years. For this, he will have to allocate one of the traditional plan’s maturity amount and start an SIP of Rs 20,000 in an equity savings fund. For the son’s wedding in eight years, he will need Rs 34 lakh and can allocate all the traditional insurance plans. No fresh investment will be needed for this goal.

Cash flow

For retirement in seven years, Rout will need Rs 4.1 crore, and can allocate his stocks, mutual funds, EPF, PPF, and some insurance plans. He will have to continue investing Rs 500 a year in the PPF, besides starting an SIP of Rs 35,000 in a diversified equity fund, Rs 10,000 in gold bond/ETF and Rs 5,000 a month in NPS to reach the goal. Maalde also advises him to shift from stocks to diversified equity funds.

How to invest for goals

Rout has made a mistake when it comes to life insurance, as he has invested too much money in buying a large number of expensive traditional plans, for which he is paying a premium of Rs 1.11 lakh a month. Maalde suggests he get all the plans reviewed by an expert, but for now keep them as the debt part of his portfolio. Rout also has one term plan of Rs 1 crore, which he should continue. For health, he has two plans worth Rs 32 lakh and should continue with these. He also has a critical illness plan of Rs 10 lakh, which he should retain, and buy a Rs 50 lakh accidental disability plan for Rs 667 a month.

Insurance portfolio

Financial plan by Pankaaj Maalde Certified Financial Planner

Write to us for expert advice

Looking for a professional to analyse your investment portfolio? Write to us at etwealth@timesgroup.com with ‘Family Finances’ as the subject. Our experts will study your portfolio and offer objective advice on where and how much you need to invest to reach your goals.