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Insurance
and Life Cycle
Life insurance provides protection againt the
financial loss caused by death. If the main breadwinner expires due to
unforeseen circumstances, the family is left without the main income
source and
may get into financial distress. However, if he/she is adequately
insured, the
impact of the financial loss is cushioned. To choose the best insurance
product, it is essential to understand the purpose it serves. It offers
you a
cover for different needs at different stages of your life cycle.
Choose your
insurance cover accordingly.
Changing
Life Insurance needs
In
terms of the quantum of life cover, several people advocate the ‘Rule
of thumb’
which states that one should insure oneself for at least six to ten
times one’s
present annual income. This amount is normally adequate for the family
to
sustain itself at the present levels, until it recovers from the
financial loss
caused by the absence of the main breadwinner. However, if we use this
rule in
isolation, we are taking into consideration only the present salary
levels,
which will give us an incomplete picture. We shall also consider the
present
savings, household expenditure, loans and liabilities while working the
right
amount of cover for any person.
Since life insurance is part of the complete
process of financial
planning, it must be reviewed on a regular basis. Insurance is best
described
as a life-cycle product. Just as we carry out regular service checks on
our
car, it is important to regularly review our life insurance and overall
financial plan so that we can make the required adjustments due to a
change in
our life stage or lifestyle. For instance, if you find that your loan
outstanding has increased, or there are more dependents, it might be
necessary
to increase your life insurance cover. Here is a guide to the insurance
cover
which might be considered adequate at various stages of your life.
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Life Stage
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Need
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Solution
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Child
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Future Planning, Contingency planning
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Child plan, term plan, endowment plan, Unit
Linked Insurance Plan (ULIP), money back plan
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Young and Working
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Cover risk, financial planning, wealth creation.
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Term, endowment, money back, ULIPs
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Young and Married
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Cover for dependents, liabilities, wealth
creation
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Term, credit term, retirement, ULIPs, endowment
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Married with kids
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Cover for dependents, liabilities, wealth
creation, future planning, health care
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Term, critical illness, ULIPs, retirement,
return of premium
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Nearing retirement
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Cover for dependents, liabilities, wealth
multiplication, contingency planning, health care, flexibility
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Term, medical cover, ULIPs, pension, capital
multiplication
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Old age
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Regular income, health care
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Pension, medical cover
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Insurance
and Investments
Often, life insurance products combine
insurance and savings. The
premium you pay is divided into mortality charges for life insurance
cover and
investments (after deducting expenses). The savings part of life
insurance can
be used meet various goals of your life like your child’s education,
retirement
cushioning etc.
Most experts advise that it is best to buy a
pure life insurance plan
like term insurance and invest separately in equity, mutual funds,
fixed
deposits, etc., as you deem fit. However, many of us prefer the
convenience of
investment products life insurance offers. There are traditional
products like
whole life plans, endowment plans, money back plans, etc., which offer
a high
safety factor but relatively lower returns. Unit Linked Investment
Plans
(ULIPs) function like mutual funds and the investment portion of the
premium
you pay is invested in a fund of your preference.
Life insurance cover has to be taken at the
young age. The premium you
pay is more as you grow in age. Hence, an overall view of financial
planning is
required at the time one begins to earn.
Disclaimer: The
information provided here is only for informative purposes and nothing
more. It is not in any way to be construed as authoritative. Always
consult your financial advisor before taking any decision. It is
informed to the people that this information that is provided here is
not to be acted upon. In spite of our advise, if any person acts upon
the contents of this web site and incurs a loss, they do it on their
own risk. We are not to be held responsible for any loss, incorrect
information etc.
Other
pages on Life Insurance: Life Insurance Riders Insurance under the Married Women's Property Act, 1874
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