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Life Insurance & Financial Planning

Life insurance is a contingency plan that should be a part of your financial planning exercise.

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A study conducted by the National Council of Applied Economic Research throws up certain interesting findings about the life insurance industry in India. Life insurance awareness in India is very high at 78%; the figure is as high as 90% in urban areas and 73% in rural areas. However, only 24% of Indian households own a life insurance policy.

 

For most Indian families, life insurance is the least of their concerns while planning their finances.

 

Let's try to unclutter a few popular misconceptions about life insurance:

Q1: I am only 30 years old. Why would I need life insurance?

A: Life insurance is a contingency plan that should be a part of your financial planning exercise. It secures your family against life's uncertainties like early death, illnesses and disabilities. It provides an income replacement to your family in case of such eventualities.

 

One should buy insurance early on in life because as the age increase, so does the risk, and hence the premium does too. The earlier you get insurance, higher the coverage for the same premium. A pure protection insurance plan such as term plan can take care of your protection needs.

 

Q2: Will I get any return from my insurance policy?

A: A term plan offers you pure protection, while a savings plan offers returns along with protection. In a savings plan, you get a maturity benefit at the end of the term, along with the life cover.

 

If you are looking for wealth creation, you can consider Unit-Linked Retirement/ Wealth Plans that have the potential to offer higher returns as they invest in equity markets. If you have a high financial risk appetite, this could be a good choice of insurance for you.

 

Q3: My daughter is 1 year old. Can insurance help me plan for her future?

A: Yes, definitely. Insurance can take care of the education needs of your child. You can buy a child plan for a policy term of 15-20 years. You can decide on the amount that you wish to pay as premium and the type of policy you wish to avail. A market-linked plan can help beat inflation and accumulate a corpus to take care of your daughter's higher education needs.

 

For example, if you are a 30-year old, non-smoking, healthy male, investing Rs. 50,000 per annum in a balanced fund (you can choose a fund based on your financial risk appetite) for a 20 year policy term, you can accumulate a corpus of around Rs. 18,70,000 at an 8% rate of return (or Rs. 11,83,000 @ 4% rate of return) , while getting a 5 lakhs life cover from day 1.

 

Q4: Can insurance take care of my retirement needs? I am looking for a plan that can give me a monthly income throughout my retired life.

A: Yes. There are products where you can invest regular amounts while you are working, and receive monthly pay-outs during your retirement years. Such plans also let you opt for a joint annuity for life to ensure that your spouse continues to get the amount in case he/ she outlives you. You can even nominate your child to receive the proceeds upon the demise of your spouse.

 

Q5: Can I save tax by buying an insurance product?

A: Yes. The premium that you pay towards life insurance is eligible for tax exemption under Sec 80C of the Income Tax Act. Also, under section 10 (10D) and Section 10(10A)(3), the amount received from a life insurance policy is exempt from tax.

 

After clearing off a few misconceptions around life insurance, we can say that life insurance forms the backbone of any financial plan. Based on your specific needs and life stage, you can choose a life insurance product that helps you achieve your goals and financial milestones.

 

Life Insurance coverage is available in this product. You may be entitled to certain applicable tax benefits on your premiums and policy benefits. Please note that all the tax benefits are subject to tax laws prevailing at the time of payment of premium or receipt of benefits by you. Tax benefits are subject to changes in tax laws.

 

If your policy offers variable returns the illustrations will show two different rates of assumed future investment returns. These assumed rates of return shown as 4% & 8% above are not guaranteed and they are not the upper or lower limits of what you might get, as the value of your policy is dependent on a number of factors including future investment performance. The actual experience on the contract may be different from illustrated. The guaranteed and non guaranteed benefits are applicable only if all due premiums are paid.

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