Due to increasing inflation and continually changing lifestyles, it is crucial for people to consider financial planning at an early stage. A financial plan of an individual must be personalized to suit the needs of the individual at different stages of life and it is essential to have a balanced mix of instruments that addresses financial needs like protection, savings and wealth creation. Quite often, people tend to focus their efforts on the ‘wealth creation’ aspect of financial planning and neglect or compromise on the ‘protection’ aspect.
Why Life Insurance?
Life insurance is continually evolving and most people do not consider it until a major life event or change makes them consider what would happen to their loved ones if the worst were to happen to them. While the key objective of purchasing a life insurance policy is to protect oneself from these worst-case scenarios, it can also be used in wealth accumulation, preservation and giving access to liquidity at the right time, if it is included as a component of financial planning.
It can be quite complicated for most of us to assess exactly how much we should invest and where we should invest, whether it is stocks, bonds, real estate or others. Life insurance is a great investment tool that is comparatively simpler, more affordable and essentially caters to the different stages in an individual’s life cycle.
You can choose a term plan at an early stage in life makes it the most affordable option or a unit-linked plan at a later stage in life which allows you to earn higher returns but involves market risk. There are also specific education plans that ensure your children’s education goals are not compromised due to an unfortunate situation. It also allows you to plan for your retirement through pension plans.
Too complicated or I still have time
Globally, most people resist purchasing life insurance as either they find the process to be too complicated or they feel it is too early to purchase insurance. These concerns here are a lack of information and an overwhelming abundance of choice in terms of policies available. Both are perfectly capable of seeding doubt in the mind of any individual.
Despite being a protection tool, life insurance can also enable consumers to save in a disciplined manner which leads to the generation of a good corpus. While there are many financial instruments that promise exciting returns, there is no other instrument that is capable of doing as much with little involvement, investment or expertise from the consumer.
Addresses multiple needs
The main objective of life insurance is to provide financial security to your family in your absence. Such needs need to be scientifically evaluated according to the life stage at which the individual is currently on and should include current liabilities, an expectation of future liabilities, number of dependents, financial goals, lifestyle etc. Having a specific need in mind does make the decision process a lot easier. For instance, a child’s education or marriage, planning for retirement or repaying a loan.
An added benefit
Life insurance also allows you to avail of various tax benefits and exemptions which makes it an incredibly attractive option for consumers.
How much do you need?
Although there are several complicated calculations that are available online, there are some simple rules to consider before estimating the insurance need of an individual. A common method is to calculate life insurance as being around 20 times more than the individual’s annual income.
There are several product categories that feature investment and wealth creation aspects for customers but none of them offer the benefits of savings and the advantage of protection as insurance policies do. A financial plan would be incomplete without a life insurance policy to include in your portfolio and should, hence, be included according to your goals and objectives.