The days of job security and government sops are long gone. Volatile markets, escalating prices and a fluctuating job sector today have only increased the need to have a security cover for India's young and experienced salaried class. It doesn't matter if you are a singleton or a householder, in today's world you need to have your plans for the future intact. Many of us may not have the happy fall-back option of an inheritance or a big corpus of funds, so it makes sense to plan for the future, wisely.
Whether you're in a government job or the private sector, what you will save today will be the security cover for your brighter tomorrow. This means that significant milestones like healthcare, pension options, investments for the educational needs of children, etc have to be factored in, while investing wisely.
Life insurance, pension plans to ULIPs: What is your best bet?
The investment option you choose depends on your stage of life and your risk appetite. Most people have a limited understanding of investment options, and therefore are unable to make a robust financial plan for themselves.
A family man with dependants who is the sole earning member should definitely invest in a term insurance policy to cover his family in the event of his untimely death. He should also invest in a child policy to secure his children. If his employer does not offer a pension plan, he should also think about investing in an annuity to secure his retirement years.
A single person without any dependants will definitely have a higher risk appetite. He/she can go in for market linked products like ULIPs or even a high growth endowment plan.
What is a life insurance policy?
This policy is essentially a contractual agreement between an insurance policy holder and the insurance company where the policy holder pays a fixed amount to the insurer, on the agreement that the insurer will pay the designated beneficiary a sum of money upon the death of the insured person (often the policy holder). On the policy holder's death his beneficiaries receive the money.
There are different types of life insurance policies available in the market today. The first type is a Term Insurance policy which is cheaper and more beneficial for the nominees and gives a lump sum in case of the policy holder's death. The main advantage it gives to the policy holder is that it saves on tax.
Whole life policy is one that covers the policy holder for life. Unit-linked Insurance Policies (ULIP) have the dual benefit of being an investment and insurance, while Money Back Insurance policy as the name indicates gives the policy holder money back after a fixed time. Though more expensive, an Endowment Plan covers the policy holder during the term of the policy and pays back a good sum when the policy matures.
A pension policy is a retirement planning policy which asks you to affix an age for retirement and earn benefits.
Typically, you have a choice between a Long Term Investment Plan under which ULIPS can be considered or a One Time Investment Plan which can cover pension plans and life insurance.
Why opt for Term Insurance cover?
This type of policy gives you a robust financial cover for your family for a specified period. Whether you're a householder or a singleton, the point to note here is that in case of the policy holder's demise this cover gives benefits to the nominee who is generally a family member.
With clocked in premiums for a minimum of five years, a term insurance plan takes care of your family's finances when faced with unforeseen factors like supplementing income in case of loss of income owing to an accident, disability, or critical illness.
You have the option of taking a single premium payment plan or going for a regular premium payment plan which may be monthly, quarterly, half yearly or yearly. The good news is that this type of policy saves on tax, is flexible and can include accident cover, critical illness & disability as add on riders if you want.
What to consider while choosing term insurance cover?
Your choice must depend on three crucial factors: the number of dependents, liabilities and annual income. If you're a householder then remember your dependents, elderly parents and children must have higher term insurance coverage as compared to someone who's a singleton. Also, do not forget to consider the inflation factor in paying premiums and coverage advantages.
Get Free Comparison and Quotes of the Best Term Plan in India.