In your 20s, everything is shiny and brand new, filled with hope and you are open to experimentation. By your 30s you are starting to settle down. Obligations and responsibilities –a new family, new home, bigger car – start to take up all your time. You may even have started semi-permanently settling in a job or got a couple of promotions. All this starts changing your thought process and brings to the forefront the need for financial planning, especially if you are the sole bread earner in your house. If you bought a life insurance policy in your 20s, you probably went for a lower cover, but now, with increasing financial obligations and dependants, that cover might start to seem rather inadequate. And if you had put off buying a life cover in your 20s, then 30s is the best time to start considering it.
Why life insurance and why now?
When you start a family, the biggest worry that plagues you is their financial dependence after your death – basically income replacement. You don’t want them to go look for alternatives to your income or leave them without some sort of cushion that would make their life a whole lot easier. Your untimely death could put a wrench in all your best laid plans that may include anything from children’s higher education to owning your mortgage-free home. Life insurance serves well as that cushion. In fact, it is one of its more obvious benefits. But what it also helps in is in providing ‘living benefits’. Living benefits refer to the returns that you may receive when you are still alive. These returns can be utilized to fund your many pet projects, like home loans, car loans, kids’ college fees etc.
Still low premiums: Unlike your 20s, stress will start to set in along with your family responsibilities. There is also possibility of health issues. Before things get too dire, it’s best to opt for insurance plans that will still give you good life cover at low premium rates. The more you wait, the costlier the premium will get.
Wealth accumulation: Opting for investment cum insurance plan at this time will give you more time to accumulate wealth for the future and also to compound it. The more years you save wisely, the larger the savings will be for your income-less years.
Short-term goal fulfillment: Many short-term plans like mortgage, car loan, children education, holiday expenses, health care costs can be covered by a sensible life insurance policy.
Saving on taxes: With increasing wealth, taxes woes also seem to multiply. During this stage of financial obligations, every penny counts and it’s just good sense to save on it. Life insurance makes sure you get tax benefits under sections 80C and 80D of the Income Tax Act of 1961.
What kind of life insurance should I opt for?
Protection plans: If you are looking for income replacement in the event of your death, protection plans, especially online ones are the way to go. They are also ideal to cover your family against home loan liabilities. There are simple term plans with no frills and only basic covers at extremely low premiums. Insurance companies are also extending protection plans with added benefits that not only offer a lump sum amount (death benefit), but a monthly income for a set period of time to your family after your death.
Savings and Investment plans: This is the age, you would prefer to start saving as this is when you start accruing it as well. Life insurance also includes savings and investment plans that offer multiple avenues to multiply your investment. ULIPs and traditional endowment plans are such avenues that allow you to not only cover your death with a life cover, but also allow you to accumulate a lump sum amount to manage you and your family’s needs during your lifetime. The two most critical savings and investment plan that you should have are the below:
- Child plans: The birth of your children will bring a host of new financial responsibilities. Right from their birth you start saving to provide them the best education. At the same time you also want to secure these dreams in your absence. Child plans allow you to accumulate savings or give you timely payouts for school and college education.
- Retirement plans: With the growing years and rising inflation, your need to secure your own future too preys on your mind. The compounding wealth in retirement plans will come to you in the form of monthly income when you cease to work, making sure you don’t become a financial burden on your children.
Health insurance plans: Our constantly changing lifestyle makes us vulnerable to health issues. Unexpected expenses can be emergency hospitalization or an accident. It can also mean multiple hospitalizations in a single year for more than a single family member. In hospitalization, expenses will not only mean the actual surgery/treatment, but also the innumerable tests that will precede it and follow it. One medical emergency and your entire savings could vanish without a trace. A suitable health insurance plan will make sure you are covered for all these surprises and that you get the best treatment for you and your family.
Here is a video to know how much life insurance cover is appropriate for you:
Read more about 5 reasons why you need life insurance
Read more about understanding tax benefits of life insurance policy
Read more about types of life insurance.
This article is contributed by HDFC Life team