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If your financial planner had assumed an inflation of 6 per cent annually while working out how much you need to save in the next 15-20 years, sorry, you are at risk of your corpus falling short. The official CPI number may be 5-6 per cent, but it grossly understates the inflation in services, particularly education and healthcare.
You will have to factor in an annual inflation of at least 10-12 per cent if you are building a kitty to fund your child’s education. The cost of getting an MBBS degree now is about ₹40-45 lakh (in Tamil Nadu); you also need to take into account the capitation fee if it is a private institution. If it is an engineering degree in a premium institute, the cost is about ₹10-15 lakh. An MBA from a B-school may cost you about ₹12-15 lakh. So, if your child is four years today, and you are planning to make her an engineer, you will need a kitty of at least ₹38 lakh when she turns 18. If you plan to make her a doctor, you will need ₹1.7 crore in 14 years time assuming the current cost of the degree as ₹45 lakh (at private institutions without capitation fee).
Health fund It is best to budget for higher healthcare expenses as you grow old, and we suggest you buy an insurance plan to meet it. It may be hard to do it completely through savings. A health insurance plan of ₹5 lakh may be taken when you are single and in the age bracket of 25-30 years. It is suggested you buy your own cover even if you are covered by your employer. You can keep increasing the sum insured amount as you grow old and the family size gets bigger, through a top-up health plan. If you are in your 40s now, with a dependant wife and two kids, we suggest a sum insured of ₹10 lakh. With health insurance policies, the earlier you buy one the better, as you will spend the ‘initial waiting period’ in your young age itself and get to claim on the policy in later years when you actually need it. Once you buy a health insurance plan, every time you want to increase the sum insured, you can buy a top-up cover. This will save you cost.
A top-up health plan is a supplementary cover that can be used by you after you finish the full sum insured in your base plan. So premiums of top-up plans are relatively lower.
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