Everyone out there seems to have a bee in their bonnet about living more in the present instead of worrying over the future. While mindfulness and optimism are great practices in any area of life, when it comes to strengthening your financial discipline, these only become second nature when you have a strong backing - a form of protection for the worst-case scenarios in life.
Whatever may be your income and at whichever point you may be in your investment journey, moving ahead without a life insurance cover could render all your efforts into a fool's errand when you have dependents in the family.
Why Get Insurance in the First Place?
Insurance is probably the most multifaceted financial tool to take care of your retirement plans. It serves as a future protection plan by providing financial indemnity to your dependents in the unfortunate event of your demise. Insurance products like annuity plans (more about it later) can get you steady cash inflows as a retiree and aids in tax saving throughout your earning tenure. The earlier you take up insurance for yourself, the better off you are, as you can enjoy the dual benefit of cheaper premiums and a greater compounding effect.
Key Insurance Jargons That You Must Know
Premium:
It is the amount of money you need to pay to the insurer (insurance company), which can be collected monthly, half-yearly, or annually depending on the scheme you go for.
Sum assured/Policy Value:
It is the cover amount that would be given out to you or your dependents when and if the contingency of your death or disability actually happens.
Maturity Benefit:
It is paid out at the end of the insurance term when you live to see the plan maturing as an insured. You can receive this as a lump sum amount or in tranches over a period of time, again, based on the scheme you choose.
Three Broad Categories of Life Insurance Policies
- Term Insurance: This is pure insurance in the truest sense of the word, as the policy amount would only be paid to your dependents in case of your unfortunate death. If you happen to outlive the policy period, there are no returns or benefit at the plan's maturity. No wonder this type of plan comes with the most inexpensive premiums (as low as half the amount payable in other plans) for the same coverage amount. This makes it particularly affordable for young people just starting out or sole income earners who can be assured of a large cover in case of some contingency.
- Endowment Plans: This plan disburses the sum insured in either case of death or maturity, whichever happens earlier. A fusion of insurance and investment, it stands attractive for your retirement plans as the premium paid throughout the tenure finds its way back to you, similar to returns on other fixed-term investments. You can get it as an annuity plan to redeem the maturity benefit over a number of years or as a huge lump sum that can be further reinvested upon receipt to support you and the family.
- ULIPs: This is another hybrid insurance product that can be part of your future protection plan, where a portion of the premium is invested in debt, equity, or other instruments as per your risk appetite. Consequently, the sum assured at the end of maturity is not fixed like an endowment plan and is subject to market risks. Even ULIPs are eligible for 80C deductions and hence are tax-saving instruments.
Conclusion
Although you should get insured early on in life, getting into a life insurance plan that suits your preference and financial goals is never too late. Edelweiss Tokio's life insurance plans are a great starting point for your journey towards financial security.