Most people are confused about how they should plan their Life
Insurance policies and what is the best time to start planning? To my
knowledge, the best time to start planning for your Life Insurance is when you
get your first salary or anytime after that. If money is a constraint, then one
can start planning for the same part by part. Also, “wants” will always surpass
the “needs” and hence Life Insurance will never be a top priority at least in
the minds of the young!
What is Life Insurance?
In simple words, life Insurance is an instrument through which
certain compensation is paid to your family for the financial loss due to your
death. So, if you are wondering why you should avail Life Insurance, then there
are several reasons such as, it offers peace of mind, ensures that your debts
will be taken care of in the event of your untimely death. Thus, simply, anyone
whose death would leave his family in a financial distress needs insurance.
Now, Different people have different requirements, which changes over the
various stages of life. Let us consider the various stages in an individual’s
life:
Different Stages have Different Needs!
It’s not necessary that every person has the same requirement in
that particular stage of life. The requirement may also change depending on
your lifestyle, priority, etc. However, needs keep changing and evolving as
life progresses and you reach the various stages of life.
The thumb rule is once you become a parent, any adult in your
house earning income should have life
insurance in india coverage that will last until your youngest child
completes college. If you have large financial obligations such as high
credit-card debt or a mortgage, you could use life insurance to ensure that
debt is covered. Also, since Life insurance is a very effective instrument for
tax saving, many people use it as a tax saving tool, as well.
22-25 years
Career Start: If you are in this stage, then you are just
beginning your career. Responsibilities are usually low at this stage. Whatever
you earn, is mainly to sustain your own lifestyle and also build a portfolio
for your future. The disposable income in this stage is usually very high.
Thus, what you need at this stage is Protection and Savings.
The best protection tool from Life Insurance would be Term Insurance.
It is for protection only.
For Savings, you could consider ULIPs or Endowment plans,
depending on your risk appetite.
28-32 years
Rising Income: If you are in this stage, then your income has
definitely gone up from what it was at the start of your career.
Responsibilities are also rising with Marriage, Kids and Asset Acquisition
being the top priority. Thus what you need at this stage is Savings, Growth,
Liquidity and Protection.
For Savings and Growth, you could consider ULIPs or Endowment
plans, depending on your risk appetite.
For Liquidity, your investment needs to be planned out according
to the stage at which you would require the liquidity. As in, you could opt for
Money Back plans, for regular cash inflow or you could opt for an ULIP, where
the option for partial or complete liquidity is available after completion of
three years.
35-45 years
Peak of his Career: If you are in this stage, then you income
would almost be the highest as you have hit the peak of your career.
Responsibilities are usually very high with the Kids’ Education and Loans being
primary. Thus what you need at this stage is Investment, Security, Liquidity
and Protection.
For Investment, you could consider ULIPs or Endowment plans,
depending on your risk appetite.
For Security, your portfolio needs to be spread across various
products, a mix of 2 or more products, provides higher security. There could be
Insurance, Mutual Funds, Bank Fixed Deposits, Gold, Real Estate, etc. You need
to carefully build your portfolio depending upon your requirement and risk
appetite and financial goals in life.
48-55 years
Decreasing Responsibilities: If you are in this stage then your
responsibilities would gradually reduce as you are approaching Retirement and
your Kids are becoming Independent. Thus what you need at this stage is
Security and Capital Protection.
For Security, your portfolio needs to be spread across various
products, a mix of 2 or more products, provides higher security. There could be
Insurance, Mutual Funds, Bank Fixed Deposits, Gold, Real Estate, etc.
58-60 years
Retirement: If you are in this stage then you have almost
reached Requirement. There would be a requirement for Lump sum Investment, with
the amount received at retirement with Substitute Income. Thus what you need at
this stage is Liquidity and Regular Flow of Money.
For Liquidity, your investment needs to be planned out according
to the stage at which you would require the liquidity. As in, you could opt for
Money Back plans, for regular cash inflow or you could opt for an ULIP, where
the option for partial or complete liquidity is available after completion of
three years.
For Regular Flow of Money, if you have not opted for Deferred
Annuity Plans before, you could opt for an Immediate Annuity Plan at this stage
would mean a regular flow of income from the lump sum investment. An annuity
plan would provide pension according to the option chosen.
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