What if I can show you a way to help a prospect have a framework understanding of what financial planning is in less than five minutes?

I created a presentation called CSI. Let me share it with you, and I believe it will change your prospects’ appreciation of what we do.

Coverage

“C” stands for “coverage.” When we do planning for someone, the first thing we focus on is if the person is comprehensively covered. To be comprehensively covered, there are five components:

Life insurance
Disability
Critical illness
Accident
Hospitalization

First is life insurance. The only reason you should ever buy life insurance in your lifetime is because you love someone or somebody loves you. If you don’t love anybody and nobody loves you, you don’t need to buy. You buy life insurance because if you die today, you want someone else to have a good life. That’s why husbands buy. They are worried that if they pass on, they want their wife and children to have a good life. And children buy, worried that if they pass on, they want their parents who raised and invested in them to be taken care of. It’s what I call a “love contract.”

Next is disability. Can a person be disabled? Yes. There was this drunk guy who drove his car and smashed into a bus stop and disabled someone. It can happen to anyone.

Next is critical illness. About 50 percent of deaths are either from cancer or a heart attack — that’s one out of two. There are 36 major critical illnesses you need to be covered for.

Next is accident. One of the most common claims we do is accident claims, from falling down the steps to sports injuries, which can be easily covered by an accident policy.

Finally is hospitalization. One of the biggest expenses you can potentially face in your lifetime is a hospitalization expense. You may have faced it, or your loved ones may have. It is easily solved by purchasing a comprehensive hospitalization plan.

That’s it. Those are the five things you need to be covered for, so if you ever meet an insurance advisor, just remember those five things.

Savings

Next is “S,” which is “savings.” There are three components:

Emergency fund
Short-term savings
Long-term savings

First is an emergency fund. You should have at least six to 12 months of your monthly income in your bank account in case you are unable to work. When COVID-19 hit us, many people lost their jobs. The whole travel industry was dead. FnB business struggled. My friend who ran a restaurant had to close it down. So these are real issues.

Second is short-term savings, which will be expenses like getting married, starting a family, buying property, getting your MBA and so on.

And finally is long-term savings. These are costs like children’s education, retirement or starting a future business.

Investment

Once we have taken care of savings, we move on to “I,” which is “investment.”

What is the only reason to invest? To make your money work hard for you. You work hard for your money. Is your money working hard for you?

If you leave all the money in the bank, what’s the interest rate? 1 percent, or what I call “lazy money.”

What is the inflation rate? 4 or 5 percent. So what’s happening to your money every day in the bank? Yes, it’s depreciating in value. One of my clients said it very well. He said, “Subhas, my money is decomposing every day.”

So, if you don’t learn how to invest in your lifetime, it’s very difficult to get wealthy because inflation will erode your wealth away.

Income to set aside

Now, whatever income you earn, you should set aside 10 percent for coverage, 10 percent for savings and 10 percent for investment. If you can follow this simple formula, you will be a wealthy person in the long run.

If you want to be a bit more aggressive, save 20 percent or invest 20 percent, but that’s the general rule of thumb.

Focus on coverage first

“So, Mr. Prospect, this is Financial Planning 101. The important thing to remember is that the first thing we focus on is coverage. Now, assuming we don’t do coverage at all, and all we do is savings and investment, and a major critical illness or disability strikes you, what will happen to your savings and investments?”

Yes, it can be wiped out or heavily depleted. That is why the first thing we focus on is to make sure you are comprehensively covered. Then that’s followed by savings, and we don’t talk about investments until you have some savings first, so that’s the flow.

Tax planning and estate planning

There are two other areas we can help clients with, which are tax planning, where we can use insurance products to help lower your tax liability, and estate planning, where we assist clients with writing a will, doing nominations and setting up a trust.

Priority

“So, Mr. Prospect, that is financial planning in a nutshell. When it comes to priority, what is a high, medium and low priority for you right now?”

They invariably choose coverage as a higher priority because it sets the framework right in their mind from the beginning.

Transcript

The value of financial advisors

Author(s):

Subhas V. Nathan