BANKING AND INSURANCE ICA

VIDHI HURA B052

74012118743

Q. Mukesh, a businessman owns 2 houses each carrying a loan of Rs 15 lakhs, his annual
income amounts to 25 lakhs whereas his wife earns 18 lakhs by working in Mukesh’s
company. They are currently covered by the company’s corporate plan for health and medical
requirements, they planned to invest for their children’s higher education and diversifying
their existing business. They have 2 children currently aged 13 years and 16 years. You are
required to design a financial plan for Mukesh and his family on the basis of their financial
roles and ensuring that all contingencies are taken care of.
Mukesh’s Age- 33
Mukesh’s Wife Age-30

Answer:-

Based on the aforementioned information provided, the following financial plan may be
designed for Mukesh and his family:

1. Assess Income and Expenses: The first step in creating a financial plan is to assess their
income and expenses. Mukesh's annual income is Rs 25 lakhs, and his wife earns Rs 18
lakhs. Their total income is Rs 43 lakhs per annum. They have two houses, each
carrying a loan of Rs 15 lakhs. Their monthly expenses are estimated to be around Rs.
1.5Lakh, including household expenses, loan EMIs, children's education expenses, and
other expenses.

2. Set Financial Goals: Based on their current financial situation and future needs, Mukesh
and his wife need to set their financial goals. They plan to invest for their children’s
higher education and diversify their existing business. They can estimate the cost of
their children's education and set aside funds accordingly. They can also invest in their
existing business to expand and grow their operations. They should also plan for their
retirement and set aside funds accordingly.

3. Diversifying Business: They should allocate a separate budget for diversifying their
existing business. Assuming they need to invest around 25 lakhs in the next 3 years for
this, they should allocate at least 8 lakhs per year for the next 3 years.For the purpose
of his children’s education, Mukesh and his wife may consider fixed deposit on mutual
funds.

4. Education Fund: They should start investing in a separate education fund for their
children's higher education. Assuming they need to save for 5 years, and the education
cost is around 50 lakhs, they should save at least 8 lakhs per year for the next 5 years to
achieve this goal.

5. Create a Budget: After assessing their income and expenses and setting their financial
goals, Mukesh and his wife need to create a budget to manage their finances. They can
 allocate funds for various expenses, such as household expenses, loan EMIs, children's
education expenses, and other expenses. They can also allocate funds for savings and
investments.

6. Savings and Investments: To achieve their financial goals, they can start saving and
investing in different financial instruments such as mutual funds, fixed deposits, stocks,
etc. They can consult a financial advisor to assess their risk appetite and suggest suitable
investment options. Mukesh and his wife can start by setting aside an emergency fund
worth 6-12 months of their monthly expenses. This would amount to Rs. 9-18 lakhs.
They can keep this emergency fund in a savings account or a liquid fund that offers easy
liquidity.

7. Build an Emergency Fund: It is important to have an emergency fund to handle

unexpected expenses or emergencies. They can set aside at least 6 to 12 months of their
monthly expenses as an emergency fund. Investing in the market may make Mukesh gain
short terms returns. Assuming, their monthly expenses are around 1.5 lakhs, their
emergency fund should be at least 9 lakhs.

8. Insurance Products-

 Life Insurance: As Mukesh and his wife are the sole earners in the family, it
is important to have adequate life insurance coverage to protect their family in
case of any unfortunate event. Both Mukesh and his wife should have a term
life insurance policy with a sum assured of at least 10 times their annual
income. Assuming their annual income is 43 lakhs (25+18), they should have
a life cover of at least 4.3 crores. life insurance policy that provides a death
benefit in case of the policyholder's untimely demise. Based on their income
and expenses,

Health Insurance: Although they are currently covered by the company’s

corporate plan for health and medical requirements, it is important to have a
separate health insurance policy for the family to ensure complete coverage.
They can opt for a family floater health insurance policy that provides
coverage for hospitalization expenses, pre and post-hospitalization expenses,
and critical illness of at least 10 lakhs for the entire family. In addition, they
can also consider a critical illness policy for a higher sum assured.

 Disability Insurance: In case of any unfortunate event leading to Mukesh's or

his wife's disability, they can opt for disability insurance, which provides
financial protection in such scenarios. This insurance policy provides a
monthly income to the policyholder, which can help them meet their financial
needs.

9. Banking Products:
Mukesh and his family can open both savings and checking accounts to manage their
finances effectively. A savings account can be used to park their emergency fund, while a
checking account can be used for regular expenses and bill payments.
They can also consider getting a credit card for convenience and to earn reward
points/cashback. However, they should use it judiciously and pay off the entire balance each
month to avoid high interest charges.

 Savings Account: They should open a savings account with a bank that offers
higher interest rates and other benefits such as free ATM withdrawals,
cashback on transactions, and other perks.

 Checking Account: They should also open a checking account to manage

their day-to-day expenses and transactions. They can opt for a zero-balance
account or a regular checking account based on their needs.

 Credit Card Insurance: They should also opt for a credit card insurance
policy to protect against any fraud or unauthorized transactions on their credit
cards.

10. House Loan:

Mukesh and his family should continue paying the EMIs on both their houses to clear off the
loans at the earliest. This will reduce their debt burden and provide more financial
flexibility.
Overall, Mukesh and his family should focus on maintaining a balance between their income
and expenses, while saving and investing for their future financial goals. By having a clear
financial plan in place, they can ensure that all contingencies are taken care of and they can
achieve financial stability and security in the long run.

11. Unemployment risk may be covered in the emergency corpus.