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Six Important Steps to Develop A Financial Plan

dateKnowledge Centre Team dateSeptember 9, 2021 views214 Views
Steps to Develop a Financial Plan | Financial Planning Process

No one can plan for your finances in a way that you can do. This is why every person needs to have a solid financial plan that can help you save money and fulfil your set short and long term financial objectives. Apart from this, having a set financial plan can also help you create a better projection of your income and expenses. Financial planning is a step by step process that acts as a guide and helps you reach all your set monetary objectives. It further helps assess all your income and expenditure, so you are always aware of where you stand financially. Also, effective financial planning must include everything concerning your savings, investments, fund flow, debt, insurance and any other components of your economic life.

The Six-Step Financial Plan

To help you create a sound financial plan according to your distinct monetary needs and requirements, here is a six-step financial plan that you can consider.

Step 1: Assess your Current Financial Situation

In this initial step of the financial planning process, you should determine your existing financial condition to understand your expense capacity, investment amount, daily expenses, and obligations. Setting up a rundown of current assets and debts and sums spent for different things gives you an endowment for financial planning exercises.

Assess Financial Situation | Financial Planning | Life Insurance Plan

Step 2: Understand your Financial Goals

Before creating a financial plan, you should timely monitor your monetary conditions and objectives. This includes getting a solid understanding of your short and long term financial goals after separating your needs from your wants. In addition, explicit financial objectives are fundamental to financial planning. Hence, before creating a solid financial plan, consider your earnings and create a reserve fund that can help you invest your funds properly to meet all your set goals.

Step 3: Identify Alternative Courses of Action

Creating alternatives is vital for using sound judgment. Though numerous components will impact the available other investment options, the possible course of action, for the most part, fall into these classes:

1. Proceed with a similar plan of action for your investment

2. Improve your current course of action

3. Switch the prevailing course of action

4. Embrace a new course of action

Not all of these classifications will apply to each of your decisions. However, creativity in financial planning is essential to make rational decisions. Thinking about the entirety of the potential alternatives will help you settle on more fulfilling and feasible choices while creating a financial plan.

Step 4: Evaluate Options

In this step, you must evaluate all the available investment options according to your risk-taking capacity and earnings to get higher returns for a long time.

Each financial choice cancels out other alternatives. For instance, an option to invest your entire funds into stock may mean you cannot invest in other saving plans. Opportunity cost is what you surrender here by settling on a decision.

This opportunity cost is usually identified as the trade-off of a decision and cannot get measured in terms of rupees. The Decision-making process will be a continuous segment of your personal as well as economic situation. Hence, you will have to consider the lost opportunities that will occur due to your selected decision.

Step 5: Assessing Risk and Create a Financial Action Plan

Risk is a part of every financial decision. However, defining and assessing your risk can be a challenging task. Hence, an ideal approach to consider risk is to accumulate data that project your earnings and risk-taking capacity to create a secured financial plan well-suited to fulfil all your monetary obligations.

Once you get this, you need to make an action plan that can pave the way to accomplish your goals. As you succeed in your immediate or momentary pursuits, the goals next in line will come into the picture.

To execute your financial action plan, you may require assistance from others. For instance, you may utilize the administrations of an insurance company to purchase an insurance plan or services of an investment broker to invest in stocks.

Step 6: Re-evaluate and Revise your Financial Plan

Financial planning is a robust process that doesn't end when you create a specific plan of action. You need to assess your financial choices periodically. Also, your individual, social, and economic-financial components may require more frequent assessment.

When life contingencies influence your financial obligations, this financial plan will work wonders to adjust to those changes. Periodically evaluating this dynamic process will help you make necessary changes to align your financial objectives and activities with your existing life situation.

Why is Financial Planning Important?

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A comprehensive financial plan can increase your mental peace by reducing vulnerability about your future monetary requirements and assets. Mentioned here are some significant benefits of financial planning.

  • It can help increase competence in acquiring, appropriating, and securing your financial assets throughout your lifetime.
  • Gain control of your finances by steering clear of your debts and reliance on others for monetary security.
  • A feeling of self-containment is gained by financial planning, predicting expenses, and fulfilling your monetary objectives.

To sum up, we can conclude that a solid financial plan can always help you create a better corpus and gain higher earnings on all your made investments. If you are looking for comprehensive investment plans to park your excess funds, take a look at the wide variety of insurance and savings plans available at Canara HSBC Life Insurance. You can do your financial planning with a life insurance plan– that will help you to protect the dreams and aspirations of your loved ones. Along with that it will also assist you to attain your financial milestones on time and effortlessly.

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Frequently Asked Questions (FAQs) Related to Life Insurance Policies

The premium is one of the most important factors to consider before buying a life insurance policy. Many people buy a life insurance policy with a high sum assured but are unable to process the premiums for the entire premium payment tenure. You can get a better idea of the premium outgo with the premium calculator available in the 'Tools and Calculator' section of

Life insurance plans come with several riders which increase the efficiency of the policy for the buyer. For instance, if you have a history of terminal illness in your family it would be advisable to opt for terminal illness rider with your term insurance plan. Riders or add-ons help in customising the standard policy benefits for the requirement of different families. The iSelect term insurance plan comes with a built-in cover for terminal illness, and option for protection against accidental death or disability. You can also opt to cover your spouse's life under the same policy by paying an additional premium.

Life insurance companies calculate the premiums based on several factors such as age, gender and occupation.

Age: It is one of the biggest factors that influence life insurance premiums. Premiums tend to be low when the life insured is younger as the chance of contracting diseases is low. Young people also opt for the best life insurance policies with longer tenures and pay premiums for a longer duration, which makes the policy cheaper for young people.

Gender: The insurance premium for women is generally lower when it comes to life insurance plans. Women live longer and pose a lesser risk of a claim leading to lower premiums for them.

Lifestyle habits: The premiums for people who smoke or drink is always higher due to higher health risks.

Policy term: Policy terms are also taken into consideration by insurers while deciding the premium amount. Life insurance policies with longer tenure are cheaper as compared to short-duration policies.

Mode of purchase: The platform that you use to buy the best life insurance policy also determines how much you will have to pay for the plan. People who buy life insurance policies online have to pay lower premiums as compared to offline policies.

Occupation: The nature of your work is an important factor that influences the premium amount. Certain occupations like shipping and mining are considered more dangerous as compared to jobs in services industries. The insurance premium rises with the risk profile.

Processing life insurance claim is a transparent and smooth process with Canara HSBC Life Insurance.

In case of the death of the life insured, the nominee will have to intimate the company by filling a Death Claim Form and sending it to the nearest branch office.

Once the form is received, the claim is registered by the insurer.

After the registration of the claim, the company will send the claims pack along with the related forms such as physician’s statement form and employer certificate that need to be filled.

Along with the duly filled forms a few documents such as original [policy document, death certificate, copy of bank passbook, hospital or treatment records, photo identification and address proof have to be provided.

The claim is processed on the submission of relevant documents. Once the documents are verified, the claim amount is released post all due diligence.

Household expenses rise with age. The cost of children's education increases along with other lifestyle expenses. The iSelect term plan offers an option to increase the cover according to the life stage. If opted, the insurance cover increases by 25% at every 5-year terminal till the 20th policy year.

Even though a life insurance policy is bought to protect your family in your absence, there are chances of the claim being rejected due to several factors.

False information: If the policyholder provides false information or conceals important information while buying the life insurance policy, the insurer has the right to reject the claim after his/her death.

Type of death: Deaths due to suicide in first policy year, intoxication or pre-existing disease is not covered under life insurance plan.

Premium payment: The payment of premiums on time is of utmost important to avail the benefits of life insurance. Life insurance policy may lapse on the failure to pay the premiums

Nominee details: A life insurance company can put the claim on hold if the nominee details have not been filled or not been updated by the policyholder.

Suicide: If the life insured commits suicide within 12 months of buying the life insurance policy, the insurance companies generally pay 80% of the total premiums paid.

Buying the best life insurance plan online is not only safe but a better option. Online life insurance policies have lower premiums and the individual is not required to visit the insurer's branch or a bank. The best life insurance policies online insurance offer higher benefits. Customers should, however, buy online life insurance policies only from credible insurers and should check for SSL certificate on the website to ensure that the website is legitimate.

The cost of life insurance policies varies depending on factors like age, gender and occupation. The average cost of life insurance plans, especially term plans, is very low compared to the amount of coverage offered.

An individual is allowed to have multiple life insurance policies. People opt for more than one life insurance policy to increase the cover or avoid claim rejection. In case of multiple life insurance policies, even if the claim is rejected by one insurer, the beneficiaries may receive the benefit from a different insurer.

Life insurance policies are of different types. In case of unit-linked or endowment policies the policyholder receives the maturity benefit at the end of the policy term. However, in the case of term insurance plans, there are no maturity benefits. The death benefit is only paid out after the death of the life insured.

When you buy a life insurance policy, the insurance company asks for the nominee details. Only the person named as the nominee in the life insurance plan can cash out in case of death of life insured.

A life insurance policy is generally taken for a specified period. After the policy duration of a term plan gets over, the policy simply terminates and ceases to exist. However, in case of unit-linked plans or endowment, you can use the policy as a tool for retirement planning and the accumulated corpus is used by the insurer to pay you monthly amounts for your entire life.

If a policyholder purchases a term plan for 25 years and dies during the policy term, the beneficiary receives the death benefit. In case of iSelect term plan, the policy provides four payment options to the beneficiaries. If the regular payment option is chosen, the policy works as a source of regular income.

It is a popular misconception that life insurance plans are only for accidental deaths. A term life insurance plan like iSelect Smart360 Term Plan also covers terminal disease along with death. A terminal illness cover is important as health insurance pays only for the cost of treatment and hospitalization, but a terminal illness cover pays you a lump-sum amount which takes care of other expenses. On the other hand, unit-linked policies such as Invest 4G cover death and also provide decent returns for other financial goals such as buying a house of child's education.

It is ideal to buy a life insurance plan in your early 20s because it is the time when people have just started with their professional life and so there are lesser responsibilities and financial liabilities to take care of. Also, if you buy the best life insurance plan at this age, you will be paying relatively lower insurance premiums since it’s a due fact that mortality rate in case of young people is low. And that is why life insurance companies offer lesser premium rates to younger people as they think that they are most likely to be fit and healthier with less chances of filing a claim in future.

Once you have cancelled your life insurance policy, you will instantly lose your life insurance cover. Afterwards, your insurance company will get in touch with you and ask for valid reasons regarding the cancellation of your policy. In case you cancel your life insurance policy within the grace period, i.e. 15 to 30 days, depending on your insurer, then insurance company will reimburse the premium amount paid by you. But, no refunds will be paid to you if the policy is cancelled after the grace period.

Yes, you can take life insurance under Married Women’s Property (MWP) Act, 1984 only if you are a married man and a resident of India. Buying a life insurance plan under MWP Act would be helpful in saving your family’s financial well-being when you are not around. As per this policy, only wife and children would be eligible to receive the death benefits. You can also buy a policy if you are a widower or a divorcee. However, in that case, you can give your child’s name as your beneficiary. It is very simple to buy a life plan under MWP Act. All you need to do is to fill up an MWP addendum while purchasing an insurance policy.

Yes, there are different payment options for you to pay premiums. Here’re some of them

    1. Regular premium payment option – This premium payment option allows you to pay premiums equal to your policy term either monthly, quarterly, half yearly or annually.

    2. Single payment option – Through this premium payment option, you can pay the lump-sum amount in one single payment.

    3. Limited payment option -In this premium payment option, you can pay premiums for a specific period of time less than policy term either monthly, quarterly, half yearly or annually, but benefits of insurance can be enjoyed for a longer period of time.

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