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What Is The Main Purpose Of Financial Planning And Control?

dateKnowledge Centre Team dateSeptember 9, 2021 views214 Views
Financial Planning | Purpose of Financial Planning

Managing funds in the present times has become the most challenging task. Since the markets are unpredictable, people nowadays require effective strategies to manage their funds and help build a road map for their economic well being. This is why financial planning is gaining a lot of recognition and importance. Financial planning is a step-by-step strategy that helps you reach all your set goals in life and for that you need a solid financial plan. A financial plan further serves as a guide in your life journey as it assists you in controlling your expenses, income, and investments.

Principal Purposes of Financial Planning and Control

Financial literacy is significant for investors and individuals who want to control and manage their funds accurately. Financial planning usually comprises all the activities related to budgeting, investing, spending, tax planning and copious more. Mentioned here are some of the primary purposes of financial planning.

1. Helps achieve long-term goals

Some milestones are pretty essential in every person's life. Be it owning a family car, an individual house, saving for your kids' higher education or their marriage. It becomes your obligation to fulfil these requirements and set milestones.

Financial planning and control can also help create a strait-laced financial strategy to suffice your economic purposes in a definite period. Hence, it becomes imperative for every person to control their expenses and perform financial planning to meet your set long-term goals.

It is likewise crucial that you plan all your goals early by investing in appropriate investment plans offered by banks. Investing funds early will always make it more comfortable to accomplish these long term goals and gain higher returns on your investments.

2. Provides hedge against inflation

Inflation today can be regarded as the most prominent killer of your purchasing capability. Inflation usually occurs when the demand for a product is more than its supply, and due to this increased demand, the prices also increase.

The biggest reason why every person must opt for financial planning is that it provides a hedge against inflation, especially during current times when the purchasing power of people is increasing and the market constantly keeps on fluctuating. This financial planning will always ensure that you bear the rising inflation while preserving your determinations unaltered.

3. Presents financial security against emergencies

When it comes to financial planning, preparing in advance is always better than regretting later in life. There can be unforeseen times in a person's life, such as a medical emergency that can drain all your finances in no time. It might leave you wondering why you did not plan for such emergencies beforehand.

Creating a financial plan and setting aside some funds for contingencies will always ensure that you and your loved ones always remain guarded against all sorts of emergencies.

Three Steps for Effective Financial Planning

With proper financial planning and control over your funds, you can get better clarity in life and enhanced peace of mind. Listed below are some steps you can follow for effective financial planning.

1. Define your financial objectives

This is the initial step you must follow for creating an effective financial plan. Defining your long and short term financial objectives, quantifying and differentiating them based on needs and wants will present you with a better understanding of your funds and keep you financially protected against market changes.

2. Analysing your financial position

To create an effective savings plan, always analyse your solvency, debt and liquidity ratio. This analysis of your financial position will help you measure your risk appetite and create the best financial plan according to your income and expenditure.

3. Implementation of a financial plan

Once you create a financial plan, the next step you must follow is to implement and follow this plan religiously. Also, you must ensure to make necessary changes according to the market fluctuations to have better control over your funds.

Components of Financial Planning | Financial Planning & Control

Saving Schemes for a Better Financial Planning

If you are keen on financial planning and money control and looking for suitable investment options to save funds for the future, below are some of the top saving schemes you can choose for making a protected investment.

1. FD (Fixed Deposits)

All those looking for a secured financial instrument for investing their money can readily opt for a fixed deposit scheme. You can easily open an FD account with any leading bank or financial institution of your choice and deposit your funds for a set duration. Once the term of your fixed deposit gets completed, you will get a lump sum amount along with interest.

Learn what is a fixed deposit and what are the benefits of including it in your investment plan.

2. PPF (Public Provident Fund)

PPF (Public provident fund) is another great investment alternative that has been remarkably successful across ages. The main reason why PPF is deemed a favoured selection is that it is an investment scheme initiated by the Indian Government and hence regarded as safe.

Apart from this, the interest rate on a PPF is around 8 per cent per annum, and the invested sum is exempted from tax under Section 80C of the Indian Income Tax Act, 1961. Not just this, but the interest collected on the PPF invested sum is additionally exempted from income tax.

The lock-in period for which a person can invest their funds in a Public Provident Fund (PPF) is around 15 Years, and once the set period of this scheme is completed, a person is allowed to withdraw their corpus. Apart from this, the investor also holds an option of retaining the scheme active by prolonging its duration by 5 years or any period according to their needs and specifications.

Having the correct perspective to comprehend financial knowledge and administering that knowledge guarantees that your economic future is picture-perfect. If you are looking forward to investing your funds in a savings plan, then you can choose from a wide assortment provided by Canara HSBC for attaining all your set financial goals.

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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 www.canarahsbclife.com.

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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