Make the Right Choice

Life insurance policies serve various objectives; they are flexible and can be mould as per ones need and convenience to suite multiple requirements; know when term plans work and when to look for savings linked plans

Someone rightly said choices are the hinges of destiny; and making a choice is not an easy task, especially when it amounts to selecting from the best available options. Mention life insurance and images of protection, savings, investment, and pension, besides tax savings conjure. Life insurance is a very important and flexible financial instrument which helps us protect the financial future of our dependents and at the same time save and invest for our own future needs. The first rule of life insurance is to definitely take a policy when one has financial dependents, and all types of life insurance policies provide for death cover.

The various types of life insurance policies available make policy selection to address protection needs alone or savings a daunting task. Moreover, there are policies that exist to address the different financial risks that one is exposed to in life during different stages in life. All this makes the case for one to have an insurance portfolio that addresses different needs at different times. For instance, a single person most often has no financial dependents and has little financial risks compared to a married man with children or a couple with financially dependent parents. Likewise someone in their 50s having taken care of their financial commitments will be looking forward to their life in retirement and little insurance cover.

There is a kind of life insurance policy that focuses only on covering financial risk, protecting one’s financial dependents in case of contingencies. Term insurance is low cost, high value insurance wherein one is insured only against the risk of death and facilitates one to be always adequately insured. Term plans are also useful when anyone takes on additional financial liabilities such as a loan to fund a house for a long period of time. In such circumstances, the term plan acts as a hedge against life’s uncertainties providing insurance cover equivalent to the loan amount and not impact the insured’s dependents were he to die during the loan repayment. Youngsters and those with high insurance needs should always look at term plans in their insurance portfolios. Whole life policies are another variant which provides an opportunity for risk cover through out ones life as well as help in building cash value as a legacy.

There are also insurance plans that address savings and growth by going beyond the death cover which aids the insured achieve their financial goals. Return-linked plans have a savings component besides protection, which is of great value to the policyholder in the long run. For example, return-linked policies are of immense help to achieve long-term financial goals such as the higher education needs of children which are 15-18 years away or building a retirement corpus which is 25-30 years away. In return-linked plans one makes periodic premium payments over several years which benefit from averaging, gain from the power of compounding and ride over various market cycles making them an ideal tool for long-term wealth creation. Such policies also offer choice of investments across equity and debt enabling the policyholder to match the savings plan that best meets his risk profile.

We live in an era of extreme unpredictability coupled with changing lifestyle owing to economic growth. Such development makes insurance needs dynamic and one should review and re-assess one’s insurance needs every time there is a significant change in lifestyle and finances. Doing so will ensure that one can maintain the same standard of living in the future and also ensure that dependents do not have to make any financial compromises in the future. It is in this context that the flexibility offered by insurance policies addresses the need for only risk cover as well as returns for every stage in life.