The right cover at the right life stage

Insurance now falls in the category of essential goods & services and has become a part of the dinner table conversations in many households. This is evident from the fact that searches for insurance products have hit a 30% increase in the first six months of the lockdown. This change in perception is catalysed by the present situation of uncertainty in the environment.

A MetLife global survey found that 56% of individuals who were already financially and emotionally resilient show a greater propensity for taking protective measures in the future. Life insurance is a unique financial product that protects the risk of untimely death and also offers long-term guaranteed returns. In this write-up, I have tried to capture key considerations which will help to plan life insurance investments wisely depending on our life stage.

For the early days – Scaling the career ladder

When we are starting in life, there are fewer obligations and future earnings potential is high. There is ample time for us to take risks and also benefit from the power of compounding. This stage is the ideal stage to build a habit to save by setting aside a proportion of earnings and investing in a mix of financial instruments. Since risk appetite is high, it is advisable to look at investment options that offer higher risk-reward such as
equity funds in unit-linked insurance plans.

Term plans are the cheapest forms of life insurance cover available and adequate corpus/sum assured through term plans can be built. At a young age, the premiums are incredibly affordable. As a rule of thumb, it is recommended to opt for a cover, which is 15-20 times of the current annual earnings and adjust the cover amount every 2-3 years to reflect an increased level of earnings. Also, longevity in India is improving with every passing decade and all of us will likely live much more longer. Hence, term plans with longer maturity age, not restricted to 65-70
years, are a good option.

It is a good call to buy a comprehensive health insurance plan early on in life as the premiums are very low and it is easier to get a health cover at a younger age. Even if our employer covers us, it is always advantageous to have a personal health insurance plan. There are various types of health insurance plans – reimbursement plans or commonly known as mediclaim which cover the cost of any kind of hospitalisation. Critical Illness plans provide a fixed amount upon diagnoses of specified illnesses. The amount provided by critical illness plans complement the hospitalisation cover and provide an additional cushion of safety.

From one to many – Getting married and becoming a parent

This is a beautiful phase where we share our life with our partner, eventually, start a family and like to settle down. This is also the time when most people begin to think about purchasing a home and plan other life goals. It also comes with additional responsibilities of providing for our family and planning for our children’s future. We might even have
dependent parents and other liabilities like a home loan. If we have not yet started investing in life insurance, this is the right time.

It is imperative to have a balanced financial portfolio comprising firstly of adequate health and life insurance and then a judicious mix of goal-based investments in mutual funds, traditional banking instruments like FDs/RDs, ULIP plans and guaranteed return insurance plans. Additionally, it is wise to include a sum assured to cover any liabilities like home loans through appropriate Credit Life Insurance covers. Also, critical illness plans are a good investment option as they will provide that extra cushion. Do remember, as children become a part of the family, it is recommended to add them to the existing health insurance plan.

Buying a child plan which helps systematically provision for future expenses related to children’s education must be high on the list. While it might be still too early in the day, it is a good idea to invest in a retirement plan to benefit from the power of compounding.

Towards the golden years – Looking forward to a relaxed retirement

This life stage is the apt time to secure guaranteed income for a lifetime, especially in the post-working years. Individuals who have built a corpus can choose to continue accumulating it or can opt for annuity plans or flexible unit-linked plans for creating secure income streams.

This life stage is also the “last and final call” to acquire adequate term life and health insurance. Any older, it won’t be easy to obtain these plans and also the premiums will become exorbitant. It is advisable to keep a whole life term plan as a part of the financial portfolio as it can work as a low-cost instrument for creating a legacy. It is also essential to ensure the continuity of all life and health protection plans. The best is to opt for electronic mandates to ensure that all our policies stay intact.

Our financial plan needs to be in sync with our life stage and the requirements unique to that particular stage. As we progress through the various stages of life, we need to re-evaluate our need for life insurance coverage.

(The writer is Head – Products, PNB MetLife India Insurance Co. Ltd.)