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Business News/ Money / Personal Finance/  What financial checks must you consider as you turn 40 years old?

What financial checks must you consider as you turn 40 years old?

40 is an age when you sit down and ponder what next you must do. You look back at the financial decisions taken and then work to mend all the mistakes made while adding on those that you might have given a miss.

Rejigging your finances at the age of 40.Premium
Rejigging your finances at the age of 40.

A few days back, Radhika Gupta, Chief Executive Officer, Edelweiss Asset Management Company offered her views on what she missed out on while planning her finances in her early 20s. The successful fund house’s head, also acclaimed for her “NARI in a SARI" views, looks back in hindsight to explain the risks she should have taken and how she should have focused more on investing than savings to benefit from the time at her side. However, time and tide wait for none, which is why deciding what must be done serves better than ruing over what could have been done in the younger days of one’s life.

Given that your inclination to take risks was higher when you were in your 20s or 30s, your financial strategy must change as you reach your 40s. Reaching the age of 40 marks a significant milestone in life, often accompanied by numerous transformations, encompassing both personal and financial aspects. With advancing years, individuals typically exhibit a reduced appetite for risk and a heightened commitment to establishing financial stability for the years ahead. Now, it’s imperative to examine essential financial assessments that you should undertake at the age of 40 to guarantee your financial security in the future.

Check for appropriate health insurance coverage

Many health insurance providers in India stipulate that individuals aged 40 to 45 must undergo a medical check-up as part of the policy issuance process. This requirement stems from the increasing health risks associated with ageing, resulting in higher insurance premiums for older individuals.

For this reason, securing health insurance coverage before turning 40 is advisable as it allows you to lock in lower premiums and avoid mandatory health assessments. When determining the appropriate coverage amount for your health insurance, consider the following factors:

  • Your current health condition and medical history.
  • Your family’s medical history.
  • Your lifestyle and occupation.
  • Anticipated future medical expenses.
  • The inflation rate in healthcare costs.

Selecting the right type of health insurance plan is crucial. Options include:

  • Comprehensive health insurance plans covering a wide range of medical expenses like hospitalization, surgeries, and medical tests.
  • Specified illness plans focussing on specific conditions such as cancer, heart disease, and stroke.
  • Critical illness plans offering a lump sum payment upon the diagnosis of a critical illness.

Once you’ve chosen the right plan, determine the sum insured, which represents the maximum amount the insurance company will cover for your medical expenses. Ensure it adequately covers your expected healthcare costs.

If you find your coverage insufficient, consider supplementing it with a super-top-up policy. This supplemental health insurance plan provides additional coverage for high-cost medical expenses, with the base policy cover acting as the deductible for the super-top-up policy.

By following these guidelines, you can select an appropriate health insurance plan to meet your needs and provide sufficient coverage for medical expenses. When purchasing health insurance after 40, remember to:

  • Look for plans with a low waiting period, which dictates when you can claim benefits for pre-existing conditions.
  • Check for premium loading, an extra amount you may need to pay if you have specific health conditions or are a smoker.
  • Opt for plans with a robust network of hospitals to facilitate easier access to treatment in case of hospitalization.

Did you buy enough life insurance?

The expense associated with life insurance premiums escalates with age, underscoring the importance of securing life insurance as early as possible. This proactive approach enables you to lock in lower premiums and provides financial protection for your loved ones in the event of your demise.

Upon reaching the age of 40, it becomes essential to reevaluate your life insurance coverage. This is because your financial obligations and the needs of your dependent family members may have evolved. Additionally, newly developed health conditions can impact your life insurance premiums.

Consider the following factors when reassessing your life insurance coverage after turning 40:

Financial responsibilities: Assess any outstanding debts such as mortgages or car loans, and consider the financial needs of your children or dependents.

Dependent financial requirements: Determine the amount of money your dependents would require to maintain their standard of living in the event of your passing.

Health: Evaluate whether you have acquired any health conditions since obtaining your last life insurance policy.

Income: Consider any significant changes in your income since your last life insurance policy purchase.

Should your financial responsibilities or your dependents’ financial requirements increase, you may need to augment your life insurance coverage. Similarly, the development of new health conditions may necessitate an adjustment in your coverage.

Conversely, if your income has decreased, you might need to reduce your life insurance coverage. However, it is crucial to ensure that your coverage remains sufficient to safeguard your loved ones financially upon your demise.

Furthermore, when reevaluating your coverage, it’s essential to explore various life insurance quotes to identify the policy that best aligns with your requirements and budget. Here are additional recommendations for obtaining life insurance after turning 40:

Undergo a medical examination: A medical exam aids the insurance company in assessing your health, which can affect your premiums.

Opt for term life insurance: Term life insurance typically offers the most cost-effective coverage.

Consider return of premium policies: These policies refund your premiums if you outlive the policy term.

Select a policy with a longer waiting period for pre-existing conditions: This choice can help reduce premium costs.

By following these guidelines, you can make informed decisions regarding your life insurance coverage after reaching the age of 40, ensuring financial security for your loved ones.

Review your investment portfolio

Conducting a thorough review of your investment portfolio stands as a paramount task in effective money management. Neglecting this crucial step can result in your investments straying from their intended purpose. Therefore, the key lies in approaching the task of portfolio review with diligence and care.

Your investment portfolio should undergo regular reviews, especially as you age because changes in your risk tolerance and financial objectives can occur over time. When reassessing your investment portfolio after turning 40, take into account the following factors:

Risk tolerance: As you grow older, your risk tolerance may decrease since you have less time to recover from potential losses.

Financial goals: After 40, your financial goals may evolve, such as saving for retirement or your children’s education.

Time horizon: Consider your time horizon—the period until you need to access your funds. A shorter time horizon may require a more conservative approach.

Investment knowledge: Your investment knowledge may expand after 40, enabling you to consider more complex assets or take on additional risk.

Once you’ve assessed these elements, initiate a review of your investment portfolio. Pay attention to the following aspects:

Asset allocation: Examine the allocation of your portfolio across various asset classes like stocks, bonds, and cash. Adjust it to align with your altered risk tolerance and financial objectives.

Individual investments: Evaluate each investment within your portfolio to ensure it still aligns with your needs. Be prepared to sell some holdings and acquire others as needed.

Fees: Review the fees associated with your investments. Transitioning to lower-cost options may offer potential savings.

By systematically considering these factors and conducting regular portfolio reviews, you can better align your investments with your changing financial circumstances and goals.

Do you have sufficient emergency corpus?

Unforeseen emergencies and their accompanying financial challenges are unpredictable. This underscores the significance of establishing an emergency fund to combat any unexpected crises. An emergency fund serves as a safety net, offering both financial support during the most trying circumstances and safeguarding the progress of your long-term savings goals.

The ideal amount for your emergency fund may differ from someone else’s. A steady income provides the foundation for a dependable and more substantial emergency fund. The adequacy of your emergency fund should be contingent upon your financial responsibilities and your comfort level with risk. As you age, your financial commitments may expand, including factors like starting a family or taking on more debt. Additionally, your risk aversion may grow, prompting the need for a larger emergency fund. When recalibrating the size of your emergency fund, consider the following elements:

Financial obligations: Determine the amount required to cover your essential expenses for 3-6 months, encompassing housing, food, transportation, and other necessities.

Risk tolerance: Gauge your willingness to assume risk. If you lean toward risk aversion, it may be wise to maintain a larger emergency fund.

Inflation: Recognize that inflation causes the cost of living to rise over time, impacting the amount needed to cover your basic expenses.

Once these factors are taken into account, you can proceed to adjust the size of your emergency fund by:

Increasing monthly savings: If feasible, consider boosting your monthly savings to expedite the growth of your emergency fund.

Investing your emergency fund: Explore low-risk investment options, such as money market funds or CDs, to allow your emergency fund to grow gradually.

Regularly reviewing your fund: Given that your financial circumstances can change, it’s essential to routinely assess your emergency fund to ensure its continued adequacy.

By factoring in these considerations and periodically reviewing your emergency fund, you can ensure it remains aligned with your evolving financial situation and risk tolerance.

Craft your will

Contemplating the creation and open discussion of writing a will can indeed be an uneasy endeavour, as it forces us to confront thoughts of mortality, both our own and that of our loved ones. While it’s true that the will you draft may potentially face legal challenges from close family and friends after your passing, this shouldn’t dissuade you from creating one altogether. Furthermore, it’s crucial to periodically revise your will, especially as your family expands and your financial circumstances evolve.

There are several compelling reasons to regularly update your will:

Family changes: Your will should accurately represent your family's current situation. For instance, if you have children, it's essential to name them as beneficiaries. In the event of marriage or divorce, updating your will to reflect your new marital status is crucial.

Financial adjustments: Your will should also align with your present financial circumstances. If you inherit assets or wealth, it's vital to update your will accordingly. Similarly, when taking on debt, ensuring that your assets are distributed to cover these debts should be addressed in your updated will.

Legal modifications: Laws governing wills can evolve over time. Regular updates are necessary to ensure your will remains legally valid according to the latest regulations.

Changing wishes: As your life unfolds, your wishes may shift. You might alter your preferences for asset distribution or beneficiaries. Updating your will is essential to accurately reflect your current desires.

Reaching the age of 40 often coincides with a stable career, placing you in a better position to draft a will or revise an existing one to align with your current circumstances and intentions.

The financial landscape has changed a lot in the last few years. What seemed like a huge earning opportunity a decade or two back might seem redundant. Apart, growing age is associated with new relationships and added responsibilities too. There is no stopping of time passing by. There is no “PAUSE" button to halt the growing age. All you must do is to plan adequately.

Adequacy is the word that must guide your financial planning decisions as you turn 40 years old. There are no doubt challenges to growing age factors but the essential strategy for addressing these challenges is to adapt to changing circumstances, both on a personal and financial level, by employing improved investment strategies and risk-mitigation measures.


Small finance banks offer slightly higher rates of interest
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Small finance banks offer slightly higher rates of interest

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Published: 04 Sep 2023, 04:07 PM IST
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