When we hear the words life insurance, what comes to our mind? What are the emotions the word evokes? Most people think it is for the earning class or people with money. The truth is simple – it is the base and crux of financial planning. There are so many instruments in the market today, as many as 20,000 investment products and schemes, so how to analyse what is best for an individual?
Just start with the basic, which is risk mitigation. The first risk we need to mitigate or cover is life insurance. Why life insurance because we have life. We all know the date of our birth but none of us know the date of our death, hence we need to protect our income for our loved ones in our absence and if we live a long life the same money helps us in doing our pension plan too.
To understand this better, let’s take an example of a building. When we begin to construct it, we see that the foundation or the plinth is strong so that it can stand all the storms. In the same way, when we start earning, we need to protect our income from the financial storms of sickness and job loss too or perhaps loans and liabilities, too. It is transferring your life risk to an insurance company and living peacefully and stress-free. It is like letting the insurance company carry your financial burden so you are free to build your dream skyscrapers. Life insurance has evolved in the last 12 years due to many other players joining this field. We have various products to suit various risk appetites as well as a saving plan for a simple home maker, too.
Today, term insurance has made inroads, and awareness has increased due to the various mediums of information. Lots of innovation has happened in this industry due to the demand of youngsters for better products and quick online services as well.
There is a scientific way of evaluating each one’s risk appetite and also understanding their needs based on gender, income, age, assets, liabilities, responsibilities, dreams, legacy planning etc can be done. One shirt doesn’t fit all. This planning has to be done with a trusted advisor, and every three years, a review meeting has to be done to understand the goals and to realign as per the changes taking place over a period of time.
Most plans for women also have a 2% discount to encourage them to save. We get tax rebate of Rs 1,50,000 under section 80 cc if we save with life insurance instrument. With the new laws in place we can save 5 lakh every year and get tax free returns too under sec 10 (10) d too. We can also save an additional 2.5 lakh in ULIP plans, too, with tax-free returns, too. Private ltd companies and partnership firms can save huge taxes under sec 37 too. We have to choose a good company with a trusted advisor as what we buy on line which is cheaper today may be very expensive for our family in the long run.
Be wise not otherwise!
The writer, an executive MBA in Business Protection Planning who has an experience of three decades in the insurance and finance industry, is the founder Smart Investments, Goa