Life insurance is not limited to providing protection only, but can also act as an important tool for financial planning and meeting one’s life’s goals. These goals may be related to child’s education, wedding planning, buying of home or car, retirement planning for self, etc.
“Term Plans, which are pure risk policies without a savings element, can be used to protect one's financial goals in conjunction with a well-structured and disciplined SIP-based savings plan. In the event of an unfortunate eventuality, the policy proceeds may be reinvested by a trustworthy appointee for the time remaining until the goal date, thereby ensuring that uncompromisable goals such as your child’s education get fulfilled even in your absence,” said Aniruddha Bose, Chief Information Officer, FinEdge.
Let us have a look at the insurance plan suitable for different life stages
When you plan to get married
Term insurance should be in your financial portfolio when you plan to get married. The earlier you buy the lesser premium you pay for the same cover. A term cover would protect your spouse’s financial need should anything unfortunate happens to you.
“The minimum age to buy a term plan is 18 years and the maximum could go up to 65 years. The best time is to buy when you are in the prime of your health and career, as with increasing age the risk factors go up resulting in higher premiums. The basic calculation is done based on your present salary, and the sum assured is usually 15 to 20 times of your annual income,” said Santosh Agarwal- Head of Life Insurance, Policybazaar.com.
When you become a parent
The purpose of term cover is to protect your family, especially if you are the only earning member in your family and have dependents. Also if you have liabilities such as home loans or any other kind of payments, you need to buy a term plan so that in case of your death the burden doesn’t fall on your family. A term plan with riders can also help you if you meet any unfortunate accident or end up with any kind of disability due to any unforeseen circumstance.
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On the other hand, if you are planning for child education, you may go for Unit Linked Insurance Plans (ULIPs) also. It offers flexibility to choose the fund option while buying it to link it with a desired financial goal. You can even change the life cover as when required which in turn help you to change your premium amount.
“The best time to invest for a child’s future is when they are born or within a year of their birth so that you have next 18-20 years to save up a bigger amount for their higher education. For example, if your child is an-year-old and you start investing Rs 10,000 per month from today for the next 18 years, after maturity you will receive around Rs 38 Lakhs which you can use for college fees. A few child plans that you can check out are IPru Smart Kid Solution from ICICI Prudential, Sampoorn Nivesh – classic waiver benefit from HDFC Life, Aegon Life iMaximize Plan- Option II and Future Gain-WOP (waiver of premium) from Bajaj Allianz. The final amount is calculated assuming the inflation rate as 4 percent per year, so it will turn out to be a sufficient fund for your child’s education,” said Agarwal.
When you are nearing retirement
If you want financial independence even after your retirement, you need to plan well in advance. Planning should be done in such a way that you can easily meet your medical expenses and living expenses. Also, make sure that post-retirement you have protected your wealth so that you may not lose what you gained during pre-retirement. Try and invest in equities to get high returns during early working life and as you move towards retirement age, transfer the holdings to debt ULIPs to safeguard the maturity corpus from any unfavourable market movements.
Ankur Agrawal, Category Head, Life Insurance said that normally, ULIP plans come with an end date or maturity date like endowment plans. However, there are ULIP Pension plans in the market where you can have a monthly income scheme.
"From a retirement perspective, the best option is to take a long-term ULIP plan. This works similar to a mutual fund. You pay monthly and accumulate your corpus that you can use at the end of the term. So, if you are in your 30s, you could take a 20-30 year ULIP. The corpus that gets accumulated at the end of the period can be used to buy an annuity that can give you a monthly income. The advantage of such a ULIP is that it will give you equity returns, so they will be higher in the long term," said Agrawal.
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