THE FACT-FIND AND FINANCIAL PLANNING

M9: THE FACT-FIND AND FINANCIAL PLANNING

Ø  What is a fact- find?

o   Identify a client’s financial planning needs;

o   Quantity them; and

o   Prioritize them based on the resources available for investment.

Ø  A fact-find shows the current financial position of the person, where they stand today and their anticipated future changes

Ø  A fact-find indentifies a client’s financial planning needs and points towards those needs that are the priority for the client.

Ø  Objectives of a fact find are as  follows:

o   Identifying needs

o   Gathering client data

o   Analyzing client cash flows and

o   Providing for anticipated changes

Ø  Identifying needs: the prime objective fact-finding is to identify client needs in the areas of:’

o   Protection

o   Savings

o    Investment

o   Health insurance

Ø  Gathering client data: this requires

o   Knowledge of the personal details of each client, their dependants, finances and employment status.

o   Existing health and life insurances and any existing pension provision.

o   An understanding of the client’s personal aims, desires and objectives for the future.

o   An important fact finding objective is to find out the disposable income.

IDENTIFYING CLIENT NEEDS

M8: IDENTIFYING CLIENT NEEDS

Ø  Childhood: two basic needs for parents are

o   Secure their children’s financial position, if they themselves die prematurely; and

o   Provide for their children’s future expenses such as for higher education, marriage and living expenses.

Ø  Young unmarried:  young unmarried with no-dependents-

o   Low protection need as there are no dependents.

o   Ned to invest any surplus income and earn high returns gains priority.

Ø  Young unmarried: young unmarried with dependents-

o   The family will be adversely affected if the young person dies prematurely.

o   Needs to protect their income.

Ø  Young married: double income family-

o   Financial dependency on one person is reduced.

o   Such couples are also commonly known as double income no kids (dink) couples

o   Loss of income due to the death of any partner needs to be compensated.

o   An individual term life insurance plan for both partners is suitable at this stage.

Ø  Young married: single income family-

o   Savings are likely to be lower than for the double income family-

o   Income protection assumes priority over other needs.

Ø  Young married: young married with children: double income family-

o   Effect of the loss of income due to the premature death of one of the partners will be less. Protection of income is important.

o   Investments towards their children’s future can be a high priority.

Ø  Children education planning:

o   The insurance agent should take into consideration  the cost of the education course selected by the prospect for his child.

o   The agent should assume an education inflation rate and based on the date when the prospect’s child will enrol for higher education, work out the amount that will be required at that time.

o   Assuming a reasonable rate of return , the agent should arrive at the monthly amount to be invested to accumulate the education fund.

o   The propect should start making regular  investments towards the child’s education fund in a child insurance plan.

Ø  Children education  planning married with older children:

o   Financial responsibility is towards their children’s higher education and marriage.

Ø  Pre-retirement.

OTHER KEY FINANCIAL PRODUCTS Part I

o   Insurers in case of critical illness riders specify terms & condition along with exclusions.

o   Benefit of the rider will not be payable under such terms condition.

o   Waiver of premium (WOP)

§  Waives future premiums of policy  holder in event of disability.

§  Insurance company always specifies the product with which this rider is

§  Available

§  WOP rider comes with the exclusions & terms condition.

o   Some other riders offered by some insurance companies are

§  Hospital care rider plan fixes an amount on a daily basis in event of hospitalization

§  The rider fixes an amount at the time when the policy is taken.

§  An insurance company may pay the actual cost for the treatment.

§  Amount may be paid for the number of days insured is hospitalized.

§  Amount is irrespective of actual amount spent in hospitalization.

§  Amount is additional amount paid apart from lump sum that maybe paid for surgery and/or critical illness.

§  The rider is similar to the individual policy mentioned above.

o   Guaranteed insurability rider gives insured right to increase cover in response to life events which are (a) marriage, (b) child birth etc.

Ø  Benefits of riders

o   Additional cover

o   nominal cover

o   customization – as per preference of customer

o   flexibility

o   an per the IRDA regulations issued in april 2002 and amended in October 2002:

§  the premium on all riders relating to health or critical illnesses, in case of term or group insurance products shall not exceed 100% of the premium of the base policy;

§  the premium on all the other riders put together should not exceed 30% of the premium on the base policy; and

§  the benefits arising under each of the riders shall not exceed the sum insured under the base policy.

Ø  Annuities

o   Annuities are a reverse of life insurance.

o   In life insurance insurer starts paying on the death of the insured whereas in annuity insurer stops paying upon death of annuitant.

o   Annuity is a series of regular payments from an annuity provider to an annuitant,

Ø  Annuity can either be immediate or deferred.

o   Immediate annuities become payable (vest) immediately after they have been purchased with a lump sum,

OTHER KEYFINANCIAL PRODUCTS

M7: OTHER KEYFINANCIAL PRODUCTS

Ø  Other financial needs

o   Other reasons for buying insurance

§  Living too long

§  Vulnerable to illness

o   Health insurance plan pays individual and their family expenses incurred in event of

§  Hospitalization,

§  Critical illness

§  Post hospitalization care

o   Health insurance plans are annually renewable policies.

o   The cost increase as the person gets older.

o   Insurance riders bring additional benefits at nominal costs.

o   Riders help in the customi9zation of an insurance policy

o   Retirement plans help the individual maintain a similar lifestyle post-retirement.

Ø  Features and benefits of other key products

o   Health plans: four main types of health insurance plan:

§  Individual health plans

§  Family floater health plans

§  Group health insurance plans

§  Daily hospitalization cash benefit plans.

o   A family floater is different from an individual health plan.

§  Individual

§  Spouse

§  Children

§  Parents

§  Insurance company  can specify number of people that can be covered

The need to have a contingency/emergency fund

The need to have a contingency/emergency fund

  The need for insurance

 The need to purchase assets such as a house, a car etc.

 The need to save for retirement.

 

 The need for tax planning

o   Need to have adequate health insurance cover for the family to meet medical emergencies.

o   Need to provide sufficient funds for children’s  higher education and marriage- child insurance plan can address this need.

Ø  Child insurance plans come in two varieties- risk averse investors can choose child endowment plans, whereas investors who a=re willing to take the risk can choose child ULIPs with an equity fund.

Ø  Need to have a regular income or an annuity after  retirement. Insurance companies provide retirement  plans to address this need.  An individual can invest a lump sum amount, or during their working life they can make regular contributions towards them.

Ø  Purchase assets like a house, car etc

Ø  The bank offers a percentage of total value of the asset as loan and rese amount has to be paid by the individual called down payment, margin money or home owner’s equity