Expert advice

Nov 04, 2014,16.35 IST

How insurance can help your finances grow

Rituraj Bhattacharjee
Bajaj Allianz Life Insurance

With the rise in the cost and standard of living these days, what is also essential is the provision of finances to support these needs. The concept of providing for these needs through credit cards has become increasingly common in such cases. While this credit system may work in case of material goods and consumer durables, your life stage goals or needs on the other hand, requires a better plan. This is why, merely planning for the immediate future is not enough. There is a need to plan ahead and make sufficient financial provision for the distant future too.

Some of the most common forms of investments through which you can provision for your future are mutual funds, stock market, fixed deposits, property, and even the purchase of gold. However, insurance too can be used as a unique option of protection and life stage planning.  A life insurance plan carefully selected as per your need not only works as a steady means of investment, but also provides the much needed protection till you attend that financial goal of yours.

The advantage with using insurance as a means of facilitating financial planning is that it is a beneficial tool which enables immense diversification. Insurance plans make available different options such as traditional plans, ULIPs, etc., which act as a solution for almost every requirement like education, retirement etc.

Adopt insurance to help your money grow
Trying to build a strong financial backing for oneself can be taken forward by ensuring that the money is invested where one gets the benefit of growth, but at the same time protects the savings/corpus. Here is how insurance can help you achieve each of these objectives.
Make saving a priority: When planning your finances, an important thing to keep in mind is that the earlier you start, the more you will save. The one major benefit of starting early with an insurance plan is that you will get a larger life insurance cover at a lower premium. Some of the best options to turn to when you are looking to save are endowment plans and money back plans, especially in your start up years as they can help you build your habit of saving. These plans usually come with a secured returns and a reasonable life cover.

Invest your money where it grows: When looking at options that can help your money to grow, turning to ULIPs is one of the best to consider. The advantage with ULIPs is that it is a flexible investment option. This gives the customer the opportunity to choose the type of fund that he/she would like to invest in, as per their risk appetite. ULIPs also enable you to navigate your investment against market volatility through options such as premium apportionment and fund switch option.

The benefit here is that the customer gets unlimited fund switch options, allowing him/her to alter the proportion of debt and equity funds, thus balancing out the portfolio. The most beneficial feature, however, of ULIPs is that this type of plan comes with the twin benefits of life protection as well as a market-linked growth for the investment.

Protect your finances: Insurance can provide you with various options that allow you to protect your money for your family’s future, upon your death or in case you are incapacitated due to some accident. Some of the most prominent options that make this possible are term plans, and riders like Waiver of Premium or Accelerated Critical Illness (ACI).

While terms plans offer your family with the complete sum assured upon your death, riders such as waiver of premium protect your family’s finances. This option helps since the nominee would still get the complete sum assured, without the obligation of having to pay a premium for the remaining policy term. The elimination of premium may come into effect in case of death or accidental total permanent disability. Additionally, a rider such as Accelerated Critical Illness can provide relief even in a situation such as occurrence of a critical illness. Accelerated Critical Illness can help by advancing your life cover so that money is available to you when you need it the most. The benefit of riders is that they provide additional features that can be taken along with your base plan, at a nominal additional cost.

Besides riders, term plans too can help protect your finances through the various options that it provides. These options could range from providing security for future situations such as change in responsibilities depending on your life stage, inflation, etc., to taking care of loan liabilities by your family, in case of the unfortunate demise of the bread earner.

Life Insurance- A multi pronged financial tool
Life insurance these days serve several purposes in addition to simply providing your family with basic monetary relief once you are gone. It is, therefore, a good idea to think about insurance the next time you want to invest your money wisely.

The author is a Head - Market Management at Bajaj Allianz Life Insurance.

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