Save For Children Education - No Point Buying Life Insurance

Everyone can do everything, provided there is time, and that much time Vikramjeet Singh and Babli Chib do not have. “I can’t spend three hours everyday for three months just to understand which fund I should invest in,” said Vikramjeet. So they chose to take “straight forward” and “unbiased” money advice from an independent financial adviser. They wanted to be sure that they are investing in the right places, instead of “acting on some emails or messages”, he said. 

While they had some investments, they felt those were not on the right track. “Half knowledge is always dangerous. It's best to take help from experts," said Babli. 

Their first aim was to understand how to go about planning. “What I wanted first was to understand the correct approach to investing,” said Vikramjeet. Their long-term priorities were children’s education and their retirement. They have two daughters—10-year-old Vanshikha and 3-year-old Geet. In the short term, Babli and Vikramjeet want to buy a car.

The next step was to look at the current financial situation, including details of expenses, income, liabilities, insurance and investments—the list was long and questions many. The first revelation was that some investments were mistakes. "That was a bit of a shock," he said. Another revelation was that while the couple knew their overall household expenditure, it was difficult to pinpoint where the money was being spent. "We were thinking of something while the reality was something else. Our investments were not as much as required," said Babli. 

While the couple had some life insurance policies, the cover was inadequate. "I had bought a policy whose proceeds I would have used to pay for children's education," said Vikramjeet. But they were advised to segregate goals and investments. "If I want to save for education, why should I invest in a life insurance policy—there's no logic in that," he said. So, the couple separated their investments according to the goals, and now have term plan for insurance. They are continuing with the older policies since the surrender cost was high, and they could afford to pay the premiums.

They were also advised to have their own health insurance policy instead of depending only on what Vikramjeet's employer was giving. They are in the process of finalising a family floater plan, and personal accident cover, which they plan to buy directly from the insurer. 

For children's education and retirement, they have started systematic investment plans (SIPs) in direct plans of equity mutual funds. For buying a car in about 2 years, investments are in debt funds. "If I am able to save or earn more, I can buy the car in a year," he said. Vikramjeet plans to pay 30-50% of the car's cost on his own. "I don't want my investment money tied up in a loan," he said. They have also built an emergency fund by investing in debt funds and keeping some money in savings account. 

In terms of liability, Vikramjeet and Babli have a loan for a house in Gurgaon. They wanted to pre-pay the loan as soon as possible, but they were advised to do so only if they got a lump sum amount from, say, a foreign assignment. 

Having a financial plan has not only answered a lot of questions and clarified doubts that both Vikramjeet and Babli had, it has also given them the satisfaction that they "are on the right track". “Things are more systematic now,” said Babli.