As Indians, we are taught to start saving and protecting our wealth from a young age. The concept of “saving for a rainy day” is distinctive in our culture. It is this that pushes us to save before splurging on lifestyle expenses. Over the years, with the rise in financial literacy, Indians have realized the importance of financial planning. This has encouraged the Banking, Financial Services and Insurance (BFSI) sector to innovate and offer a host of products.
Financial planning, however, goes beyond sound financial advice. It is important to have an effective strategy that helps your money grow and covers you against any future uncertainties. With life and employment becoming unpredictable in the wake of the pandemic, there is a greater need to have a well-thought financial plan now, more than ever before. Having an exhaustive plan helps you invest and save wisely to build a sizeable corpus for all future needs. Therefore, investing in the right financial products is imperative.
Investors have ample options to invest and earn good returns from avenues like stocks, mutual funds and life insurance. However, life insurance is the only category that serves the dual purpose of helping one’s money grow and providing financial protection.
There are many life insurance products one can choose from, but term insurance is the only one that covers pure risk. Policyholders’ dependants receive a pre-determined corpus in the event of death. But these plans are with fixed tenure, meaning if the policyholder outlives the policy period, the policy ceases. Dependents are also not liable to receive any benefits. Term plans are the most cost-effective life insurance products, and a must-have, for individuals with financial dependents.
Individuals can pick from Unit-Linked Insurance Products (ULIPs), savings and pension plans, among others based on their financial goals, risk appetite and investment horizon. For instance, child plans help build an adequate corpus for the child’s future expenses such as education and marriage. Parents or guardians can invest based on their financial capacity and the child’s expected future needs. Investing in these plans help parents secure their child’s financial future without compromising on their own needs. Child plans act as a safety net and can also be used as collateral for education loans and other child-related borrowings.
For the long-term, one can also invest in ULIPs that invest your money in equities or debt instruments. Ulips offer several benefits which make them an attractive. With its five-year lock-in, it gives enough time to reap higher returns. One can also switch between funds making Ulips a relatively low-risk product.
Pension products help build a retirement corpus over a long period to secure the financial needs during the golden years of one’s life. On investing a fixed sum of money regularly over a specified time or a lump sum, pension plans ensure a constant flow of money during the retirement years and offer a life cover. All retirement expenses such as lifestyle and healthcare costs can be met comfortably with these plans. Understanding various financial needs that could arise during one’s retirement, we recently launched the Exide Life Smart Pension Plan. It is a ULIP-based pension product that helps investors build a large retirement corpus.
One significant advantage of investing in life insurance is the tax benefits. Premiums you pay towards life insurance products are eligible for tax benefits under Section 80C of the Income Tax Act. Also, the amount at the time of maturity is tax-exempt under Section 10(10D) of the Income Tax Act. In ULIPs, policyholders also get the added advantage of tax-free switches between equity and debt funds based on the policy terms and conditions. Besides offering financial security in the longterm, life insurance reduces your tax liability and increases net income.
Insurance products are designed to go beyond financial protection, making it a novel investment avenue. The various benefits they offer is what makes them an essential product in one’s financial portfolio. If you’re still contemplating investing in life insurance, now is the time to take the plunge!
The author is Director of Strategy at Exide Life Insurance