Insurance Products Address Diverse Needs Throughout Life’s Stages

With life insurance policy in hand today, you can provide financial security for your family, protect your home against loans, save for your child's education and marriage, address your retirement and estate planning needs  and the list goes on. The choice is simple - do you wish for even one of the above? And if the answer is yes; then life insurance provides a customized solution for each of them.

Increasingly people are aware of life insurance and the important role it plays but choosing an insurance plan can be very challenging. Most people do not possess the experience they need and information to select the right plan for them. In addition, they have a great deal of trouble calculating how much insurance they need. Often, they underinsure.

This is where the need for a financial planner comes in, someone who can take into account your personal finance situation and help you decide which insurance you need, and equally important, how much you need. Many clients come in knowing they need insurance, but not knowing what kind. Other clients may have insurance but have unknowingly purchased the wrong cover or not enough and need to make changes. They are always grateful for the experienced help they get. A phone call can work perfectly well if a personal meeting is not possible.

We at InvestmentYogi,  are an online personal finance service that offers financial planning, tax planning, budgeting and more, has a different approach. We have developed a software tool which can calculate how much insurance you need automatically, and tell you if you are underinsured or not. This is all online and accessible to anyone with an internet connection.Below are a couple of calculators:

http://investmentyogi.com/cs/widgets/ExpenseProtectionCalc.aspx

http://investmentyogi.com/cs/widgets/InsuranceHumanLifeCalc.aspx

Most Indians are underinsured and do not understand the right amount of insurance for their situation. In fact, insurance is looked upon as a tax saving and investment avenue rather than a cost to provide financial security to one’s family. The country has thus seen a high demand for products like endowment, money-back and unit linked insurance plans (ULIPs) vis-à-vis term plans. This is  despite the fact that the premium payable for a pure term plan is just a fraction of other plans. What this leads to is underinsurance to sustain affordability of such savings plans.

According to the annual report of Insurance Regulatory and Development Authority of India (IRDA), the total amount of sum assured (life cover) taken by all citizens of the country together is just about Rs 23,96,646 crore as on March 31 ’08 which is accounted for by 26 crore odd life insurance policies. This means that on an average, sum assured per policy is just a little over Rs. 90,000. What is even more disheartening is the fact that even those who are insured are covered for sums too petty to be called an insurance cover for life.

Individuals must do accurate calculations of how much insurance they need and purchase sufficient cover to match that. If insurance as an investment is not an option due to cost (or objectives, or other issues) then term insurance can often meet their needs. Term is not yet popular in India and not well understood but often it may be the best option.

The need for life insurance can be traced through every stage in a person’s life. From Term Insurance or Pure Risk cover, the cheapest and purest form of life insurance which addresses loan protection and financial loss on death, to Endowment Plans, both traditional and market linked, that help in savings and investment for future goals and events, to Pension Plans that look after post retirement income replacement, Life Insurance products can offer solutions for comprehensive financial planning.

Because of the ongoing need and changing situations, it is helpful to have a financial planner assisting clients in making the right choices, and making changes when needed. A helping hand will always help the client buy what’s right for him. The following is a typical evolution of life insurance needs:

• Early 20’s - Single and starting a career – at this stage in life, where one is free to fend for himself/herself, the need for life insurance is low. However, with age on one’s side and the anticipation of responsibilities and liabilities that are about to start shortly, a term plan can be considered as an initiative for the future.  With income not sufficient to support a savings plan, term plans will provide the right cover with a more affordable premium.
• Late 20’s & 30’s - Marriage, liabilities and setting goals – at this stage, life insurance plans can provide both protection as well as an investment avenue for future goals. Liabilities are at the forefront when thinking of securing the family’s future. One needs to ensure that liabilities are covered so that the family is not bogged down with the burden of paying them off with the loss of their earning member. Next step is to take sufficient insurance to ensure that the family will be provided for, continuing the same lifestyle that they are accustomed to. Term plans, even though possessing no maturity benefits, can provide just the right amount of protection needed for this. To protect and save towards future goals, one can look at a combination of endowment or children’s plans (depending on the goals) and term plans, depending on the affordability of the same.
• Late 30’s till retirement - in addition to all that is mentioned above, one also needs to start planning for the retirement years. Although it is advisable to invest in a myriad of avenues to save towards one’s retirement, 10 to 20% of the corpus is recommended to be met though pension/annuity plans which can provide for a steady and reliable income post retirement.