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Thursday, 15 March 2012

Term Plan Life insurance - A risk management tool

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A FEW days ago, I was reading an advertorial by a jeweller brand. A comparison was made between present wedding expenses and expense 20 years later. The amount is six times the present expenses. With the increase in gold prices and at the existing fluctuating 8 per cent inflation rate, it has become almost impossible now to predict how much money would be required to lead a comfortable life two decades later. Life insurance assesses you needs with long-term financial goal perspective, and helps you plan ahead.

We all have different family structures, lifestyle and expenses. But, some things are mostly common with everyone — getting married, buying a house, having a child, child education and eventually marriage of the child. All this is interspersed with health breakdowns and other emergencies. The small ones can be tided over, but the bigger ones pose a problem. During your working life, it is easy to handle such a situation because mostly people would be covered by company medical insurance. But, what if something irreversible happened to you during your working years? Life insurance provides 'term plans' for such exigencies.

The basic feature of life insurance is to provide long-term savings and protection for your family.

It helps you build wealth depending on your present stage in life and your future financial needs. Life insurance has several attributes.

While the loss of the family's main breadwinner is an irreplaceable loss, with a protection plan in place, the family can continue to live with the funds required to be financially independent. No other financial instrument will be able to provide this unique attribute of life insurance and, hence, it should be a key ingredient in an individual's financial plan. As a risk-management tool, adequate life insurance with proper cover in an individual's financial plan is a must-have.

Demand is always more than supply when it comes to money. Education for children and their extracurricular activities take up a large sum in an individual's portfolio. All this, along with financial security, is possible if you can include enough savings and insurance coverage that grows with them and is there for your child when needed.

The most important thing to remember is that life insurance provides a policy for each stage of your life. But, that does not in any way imply that all policies are meant for everyone. Before buying a policy, factors such as age, in come, background and dependants need to accounted for. An unmarried person may just buy a term policy. However, with marriage and increasing financial responsibilities, protection along with long-term savings is required. Long-term savings is also key towards building the much needed wealth kitty.

To predict an exact requirement of a person's life span requirement would be difficult. But, after a broad level assessment of an individual's existing liabilities, expectation of future liabilities, number of dependents, financial goals, lifestyle and inflation rate, it is possible to map your future financial needs with the several life insurance plans available and tailored to suit your changing financial needs and responsibilities.

Apart from long-term savings and protection, life insurance provides additional benefits of systematic savings and the power of compounding which will aid wealth creation for the customer. Endowment and money back plans are as important as long-term pension plans in a portfolio.

There is also another class of additional insurance covers called riders that one can attach to the usual life plans that enhance the scope of the cover both qualitatively and quantitatively.

Riders are mostly ignored by customers as they feel it is a waste of money.

However, niche risk covers such as accidental death or contracting a critical illness are very important. It is imperative for customers to understand the need to buy the right insurance plans at the right time and the need to enhance it to match the changing lifestyle needs.

Life insurance is the most reliable financial tool when it comes to planning for future expenses as well as for emergency situations. Even though there is no instant gratification, such as a sudden gain in the stock market, life insurance provides that financial stability when you actually need it. A policy is available for each stage of life. It is for you to understand your needs and decide after proper discussion with your agent/adviser how much you want to invest under what timeframe.

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These Application Forms can be used for buying regular mutual funds also

 

Some of the best Tax Saving Mutual Funds available ( ELSS Mutual Funds )

  1. HDFC TaxSaver
  2. ICICI Prudential Tax Plan
  3. DSP BlackRock Tax Saver Fund
  4. Birla Sun Life Tax Relief '96
  5. Reliance Tax Saver (ELSS) Fund
  6. IDFC Tax Advantage (ELSS) Fund
  7. SBI Magnum Tax Gain Scheme 1993
  8. Sundaram Tax Saver

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