Building a Robust Risk Plan for Your Family's Future
In today's discussion with Radhika, Shantanu, and Priya, we explored the critical importance of investing for our life goals, like funding our children's education or planning for retirement. But before we dive into investing, it’s essential to first get risk out of our lives.
One of the main risks is income loss. If you're the primary earner in your family and something happens, what will your dependents do? To secure your family’s future, the first step is to identify:
- Who are the dependents in your family?
- What level of risk do you carry as a family?
We also discussed how to quantify risk using two methods:
- The Income Replacement Method
- The Expense Replacement (or Need-based) Method
This helps us determine the optimum amount of term insurance needed to replace lost income if something happens to the earning members of the family.
Next, we examined health insurance. It’s important to ensure that all dependents are covered with adequate health insurance. Relying on just your employer’s health insurance is not enough—having a personal health insurance policy is always a wise move. In case there’s a history of critical illness in your family, it’s a good idea to add a critical illness cover to your policy.
We also discussed the importance of having personal accident and disability cover. When we are young, the chance of loss of income due to accidents is higher than sickness, so having this coverage helps mitigate that risk.
To summarize, the key elements of a robust risk plan are:
- Adequate term insurance
- Health insurance for all dependents
- Critical illness cover (if necessary)
- Personal accident and disability cover
With these measures in place, we can greatly reduce the risk that our families carry. In the next series, we will discuss an important topic in personal finance: estate planning.
Check out the video below for a detailed explanation of today’s discussion:
