For all
those who have financial dependents , life insurance is a must. Life insurance acts as a tool for income replacement. The idea is to not make the
surviving family members suffer
financially due to the absence of bread
earner. Its do not enough to keep the
family maintain their standard of living
life insurance ensures much beyond it. There are a financial
liabilities towards, children which one
needs to meet., Life insurance makes sure such goals are met
systematically and dreams and
aspirations of children are not
compromised . In addition if there are housing and car loans , life insurance serves it role in managing them as well. In simple terms, life
insurance company, ensures your family
doesn’t suffer financially and
all your goals are met for a small price by paying a premium,
that your pay to ensure it. THE
PRODUCT RANGE: Life
insurance products help in channelizing
your savings systematically into
various assets for generating returns over the
along term. As wealth gets
disciplined savings are goes a long way
in meeting the long term financial goals.
On one end of the
spectrum are the pure the term insurance
plans. They solely cover the risk of the
dying. Nothing is paid on maturity I.e.
on surviving the policy will replace the
income that will cease to accrue. Then there are a traditional
insurance plans including
endowments and money back plans
which are a ideally suited for conservative individuals
looking to bundle savings with
protections . On the far end is
the market linked investments cum protections plan called until linked insurance plan ideally suited for a those looking for a bundling and exposure
to equities as asset class for a
higher that inflation kind of returns.
Besides protection insurance,
products with savings elements helps in meeting one’s long term goals such as kids education
marriage or even retirements .
Market linked insurance products
having equity exposure
comes handy in this as equities are said to work best over long term as
against other asset classes in
delivering higher than inflation
adjusted returns. Link your savings in
these unit linked insurance plans to
long term goals. Be exposed to
equities till about three years away from goals and
then start shifting funds from equity fund options to less volatile debt funds.
This helps in protecting the gains
made.
LIFE STAGE BUYING: Buying insurance is not a one time affair. The
insurance need changes as per life stage and one should provide for each
one of them. Reviewing requirements at every life stage or after 5 years helps. For those who are single or have
recently started career, the
immediate need might not be there unless
there are a financially dependents
parents or siblings ,. However even for them buying insurance early in life helps in keeping the
premiums low because of age and medical
9issues connected with higher ages. As one move up the life
stage., gets married and have children, the
insurance need rises. Keeping and adequate coverage not only helps
family maintaining the same standard of
living but also helps in achieving
certain life goals such as kid’s
education or marriage. Since education
is the prime concern for most Indian parents, investing in a child plan will ensure that the
education of your kid goes unhindered
whether or not you are a around. Its is a very likely
that during this period, one
takes a home loan and adds on the exiting
financial liabilities. Getting
not just the home loan insured
but also any other form of loan such as a car or personal loan is a
must. The value of the human life is
unlimited. Still most of us consider it
enough to keep a life cover of Rs. 2
lakh- Rs. 5 lakhs or Rs 10 lakh . Will
it suffice ? Will such amount be enough to replace one’s income be enough to replace one’s income for the next several years? No wonder we at
most times are under-insured during our
life time. GET REAL VALUE OF YOUR LIFE:
Human life value (HLV) approach to calculating
the insurance requirements takes into a account four factors annual income, annual
expenses years to retirements and
inflation adjusted cost of expenses.
From these factors a reasonable accurate
assessment of the value of your income can be made. First deduct all your personal expenses such as a food, clothes, travel,
entertainments from your annual income
after deducting personal expenses is
what your family consumes. Second see how many years of earning are left your retirements age minus your current age. Project
family expenses up to
retirements. Add non-recurring expenses , like your children’s higher
education or their marriage. The
shortfall is
what you should
insure for. Third calculate the
present value of the shortfall allowing for a reasonable rate of inflation . You may deduct
existing life coverage and account for any debt such as a big ticket
home loan to arrive at a more
reasonable HLV figure. CONCLUSION: Link your life insurance to your goals. Choose between
traditional and Ulips based on your requirements and understanding of the products. Do not invest in any of term
unless you have a basic understanding of how these products the work. Once
bought run them will till maturity and refrain exiting
earlier as a it would turn costly
in surrendering
before the term ends.
As a thumb rule, keep life coverage of at least ten times, of your annual income. Above all, ensure you are a
not under insured as that would be the
biggest mistake in your life. ...