Majority of the Indian household traditionally have single bread winner. Economic growth has caused huge migration from th interior part of the country to the urban areas. People settle down building their dreams and hopes by taking housing loans. Family's future depends on the bread winner's ability to earn money and foot the bill. In the event of the untimely death of the bread winner, it would be impossible for the family to maintain the life style they were used to which include children's education. losing the house they call their own due to foreclosure of the loan.
Though indian culture teach us to accept our fate and have faith, there is another easy way out...
Life Insurance
The bread winner above, should have insured his life for an amount which would give sufficient returns, if invested, to maintain his income month on month, in the event of his death.
The advantage of taking life insurance for the policy owner is "peace of mind", in knowing that the death of the insured person will not result in financial hardship for loved ones. They can maintain the same life style even in his absence. Objective of the life insurance is to protect the income of the insured in the event of his death. Few products one should consider is as follows...
Term Plans
Term insurance plans provide coverage for a particular period of time during which the policy holder has to pay premium for the cover. The benefit would be payable only on the event of the death of the insured. In such a case the benefit would be payable to the beneficiaries. The policy however does not provide for any benefit during the life of the insured. However, there are lot of insurance companies who pay additional benefits or riders to the policyholders like accident covers. These policies can be used by people who cannot afford to pay a lump sum amount on endowment assurance policy or whole life policy. Once the policy expires it is up to the policy holder to renew it or not.
Children's Plans
These are investment cum insurance plans offered by the insurance companies. Under children's plan, the parent starts investing in the fund from the time the child is born and can withdraw the savings once they reach their maturity age. These plans come with inbuilt insurance components in order to ensure the sum payable to the child is insured against the premature death of the earning parent, in which case the remaining premium cannot be paid.
Investment Plan
The first step in investment planning is to realise the financial goals of an individual- what his financial requirements are in the future and by what time frame he has to achieve it. Insurance companies will place the funds into proper investment vehicles, based on the level of liquidity and the levels of return expected. Investment plans may be unit linked in nature, it can be systematic in nature.
As indian society is very keen on returns, the pure protection products (Term Assurance), even though they were very cheap, never really took off till privatization of the insurance industry. Hence other products evolved which had a protection element as well as saving elements; where the main objective is to facilitate the growth of capital by regular or single premiums. Such products like Endowment, Money back were hugely successful even though majority of the policy holder used them as a tax saving instrument. Further evolvution of the saving products were the market linked products (ULIPs) which capitalised the market returns of the stock market.
Three step strategy to insure your life
- Start young (premiums are low for the young & healthy)
- Insure (Term plan) your liabilties (sum equal to your loans).
- Protect your income - Increase your sum assured to an amount which if invested would ideally fetch your monthly (in hand) salary, inflation adjusted.
