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If you have a home loan, make sure you have term insurance

If you have a home loan, make sure you have term insurance
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First Published: Thu, Mar 17 2011. 09 08 PM IST
Updated: Thu, Mar 17 2011. 09 08 PM IST
I am 44 years old and my gross annual salary is Rs 40 lakh; my wife earns Rs 11 lakh. I have bought a second house and an under-construction commercial shop. Both of us are paying equated monthly instalments (EMI) of about Rs 2 lakh per month for the new house and shop. I plan to be debt-free on both these property by December 2013. The total cost of the new house is Rs 75 lakh, including registration, and I will get its possession in December 2013; the shop will cost Rs 33 lakh. I don’t intend to take any loan but my wife will take 45% of the amount as loan. I have been investing Rs13,000 through systematic investment plan for the last 18 months. I have a term cover for Rs 25 lakh and life insurance policy for Rs 10 lakh. I also invest Rs 5,000 each in two unit-linked insurance plans thar are children plans with a tenor of 13 years, starting from 2006. I am also investing in pension plans for Rs 10,000. I have taken a health cover for Rs 10 lakh which covers my mother, wife, son and me. I need to secure my son’s education and marriage. I have started investing late so how do I recover my lost years of investment. How do I increase investments to gain maximum returns and plan retirement at 55 years?
—Dipayan Chowdhury
It is very important for you to recover the lost years of investment. Starting investments immediately is crucial for you.
Assumptions:We have assumed growth at 8%—savings will increase every year at this rate. Inflation has been taken at 7% and the interest at 9% (earnings). The average savings has been taken as Rs 2 lakh per month, starting from 2014, when your EMIs finish. This is expected to be saved till your remaining working span of nine years, till you turn 55 years.
Investment planning: As you have started saving late and have more allocation towards real estate, you need to take higher exposure to risk as there is no short-term need. However, it needs to be seen how much risk appetite you have. You have done well by starting an SIP. But the amount of saving is not enough. You can consider increasing the same. However, limit yourself to few funds and spread your risk between diversified, large-cap, mid-cap and equity oriented funds.
In the debt space you can consider having exposure in Employees’ Provident Fund, Public Provident Fund, dynamic debt and fixed monthly plans.
Insurance: The life cover of Rs 35 lakh is less for you as you have a housing loan running. Increase your term cover as well as provide the same for your spouse as she is also working and is contributing towards loan. For Ulips, try to understand the policy, costs and benefits and decide whether it is worth continuing the same.
To read the full answer go tohttp://www.livemint.com/loan.htm
Surya Bhatia, Certified financial planner and principal consultant, Asset Managers
Queries and views at mintmoney@livemint.com
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First Published: Thu, Mar 17 2011. 09 08 PM IST