Today there are a lot of life insurance options and plans to suit just about anyone's needs. But more choice brings with it the burden of decision-making, sifting and selection.
Not all individuals have the time, patience and expertise for this kind of active 'insurance management'. We have outlined a likely insurance strategy for you.
If you are between 25 and 35 years of age:
In this age group your most critical and primary need is to get yourself a life cover. A term plan/insurance fulfills this need in the most cost-effective manner.
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Term plans work well for individuals who want to separate the insurance cover/security from the savings/investments. Term plans only take care of the life cover; that is why term plans are also known as 'pure cover' and are the 'cheapest' form of life insurance.
Individuals who opt for term insurance have to ensure that they have an investment plan to provide for the savings.
This they can do by investing in a gamut of investments across mutual funds, stocks, bonds and even gold and property.
One point that individuals will appreciate is that the cost of insurance is lower when it is bought earlier on. In other words, the cost of insurance rises in proportion to your age. So you benefit from lower premiums if you take insurance at an early stage in your life.
A good thing for the individual is that the domestic insurance sector now has a lot of depth in terms of insurance plans/options.
Individuals who are not comfortable making their own investments or do not have the time and patience to make a slew of investments and keep track of them, can consider investing in endowment plans.
Unlike term plans, endowment plans also include a savings component to complement the life cover.
Individuals can also select unit-linked endowment plans (ULIPs). ULIPs have an equity component ranging from 10% to as high as 100% depending on the insurance company.
The equity component in the ULIP allows individuals to benefit from investments in equities that tend to perform better over time vis-à-vis comparable investment avenues like bonds, property and gold.
Younger individuals can consider selecting ULIPs with a higher equity component (up to 40 per cent).
Individuals who are married and have children (which is probably the case with most in this age group) must consider taking insurance for their child's education and marriage.
Child plans are available in the regular as well as the ULIP options. Taking the ULIP with a higher equity component (up to 50 per cent) with at least 15 years for the plan to mature will ensure that you have accumulated a reasonable if not impressive corpus for your child.
Getting a pension policy is equally important at this stage. Pension policies allow individuals to accumulate savings over a period of time that can be invested in an annuity plan at the time of retirement. Pension plans also have a unit-linked option.
If you are between 35 and 45 years of age:
You are probably insured, so there is lower need on that front. However, the moot point is - are you adequately insured?
You probably got insured at a time when you had fewer needs, a conservative lifestyle and a lower salary. If this has changed with more needs and a better lifestyle, you should step up the insurance amount so that your family can maintain this lifestyle in the future.
A combination of term (larger proportion) and endowment (smaller proportion) can be considered to provide for the life cover and savings. You will have to review your existing insurance and investment portfolios at this stage.
If you haven't taken any insurance cover as yet, then you need to get yourself a life cover on a priority basis. Taking an endowment plan at this stage will be an expensive affair.
If you haven't taken a retirement-oriented product like pension, you may want to consider taking a pension plan. This is the stage, when individuals need to give retirement serious thought. Remember at about 40 years, you are half through your career and you have about 15-20 years left till you retire.
If you are over 45 years of age:
At 45 years, your insurance cover needs are probably taken care of already. Otherwise you can bridge the shortfall by taking a term plan.
If you are about 50 years old, you now have about 10 years till you retire. Retirement concerns should probably be your biggest worry. Ensure you have a pension plan in place.
If you are 55 years old, then you are on the threshold of retirement. Consider taking an (immediate) annuity to take care of your regular income needs.
Considering that private insurers as yet do not have an immediate annuity product in place, your options are restricted to that extent.
To reiterate, we have attempted to outline a 'flexible' insurance strategy for the individual. However, given the dynamic needs of individuals and their financial obligations, individuals may feel the need to tailor this considerably to suit their requirements.
Nonetheless it helps to have a strategy in place than to have none. And hopefully, it helps individuals face up to life's eventualities with a little more assurance.This article forms a part of the latest issue of Money Simplified - The Definitive Guide to Tax Panning. Click here to download, for FREE, the complete guide.
