Financial Planning through Insurance
- Pradeep Pandey, Chief Marketing Officer, Future Generali Life Insurance
In the wake of increasing inflation and changing lifestyles, it is imperative for every individual to focus on financial planning at an early stage. A financial plan of an individual should be customised to meet one's individual needs at different stages of life and it is important to have a balanced mix of instruments to address the various needs of protection, savings and wealth creation. It is observed that people tend to focus on the 'wealth creation' aspect of financial planning and the 'protection' element often gets compromised or neglected.
Why Life Insurance?
Life insurance is still a nascent idea and most people do not think about it until a major life change causes them to consider what might happen to their loved ones in case of any unforeseen circumstances. While the main objective of buying a life insurance policy is to protect oneself from unforeseen circumstances, it can also help in wealth accumulation, preservation, and give access to liquidity at the right time, if added as a component of financial planning.
Most of us usually get confused on how much to invest and where to invest – stocks, bonds, real estate and many others. Life insurance is a good investment tool, which is comparatively simpler, more affordable and most importantly caters to the different stages of the individual’s lifecycle.
You can buy a pure protection plan (a term plan) at an early stage which is most affordable or a unit linked plan at a later stage which gives you the opportunity of earning higher returns, but involves market risk. There are specific education plans which ensure that your child’s education is not compromised in case of an unfortunate situation and you can also plan your retirement through pension plans.
Too complicated or I still have time
Most people across the world avoid buying life insurance as either they find it complicated, or think it is too early for them. The concerns are information and choice – a lack of the former and an over-abundance of the latter. Both are perfectly capable of clouding the most purposeful mind to falter.
Apart from being a protection tool, life insurance also helps a consumer save in a disciplined manner which leads to creation of a good corpus. While other financial instruments may give you exciting returns, there is no other instrument which does as much with so little of a consumer’s involvement, investment or expertise.
Addresses multiple needs
The key objective is to secure your family’s financial needs in your absence. These needs should be scientifically assessed depending on the life stage at which the individual is along with current liabilities, expectation of future liabilities, number of dependents, financial goals, life style etc. A need in mind makes the decision process simpler – be it child’s education or daughter’s marriage or planning for your retirement or loan repayment.
An added benefit
It also helps you avail of various tax benefits which makes it an even more attractive proposition.
How much do you need?
While there are many complex calculations that are available online, there are some simple thumb rules to estimate the quantum of insurance needed for an individual. The most common way is to calculate life insurance as about 20 times of the individual's annual income.
There are many product categories that can cater to the ‘Investment and Wealth creation’ needs of the customers, but none can offer the advantage of protection along with the benefit of sustained and disciplined savings as insurance products do. A financial plan would not be complete without the key element of life insurance so chart out your goals and objectives and make an informed decision.