Most people are confused about how they should plan their Life Insurance policies and what is the best time to start planning? To my knowledge, the best time to start planning for your Life Insurance is when you get your first salary or anytime after that. If money is a constraint, then one can start planning for the same part by part. Also, “wants” will always surpass the “needs” and hence Life Insurance will never be a top priority at least in the minds of the young!
What is Life Insurance?
In simple words, life Insurance is an instrument through which certain compensation is paid to your family for the financial loss due to your death. So, if you are wondering why you should avail Life Insurance, then there are several reasons such as, it offers peace of mind, ensures that your debts will be taken care of in the event of your untimely death. Thus, simply, anyone whose death would leave his family in a financial distress needs insurance. Now, Different people have different requirements, which changes over the various stages of life. Let us consider the various stages in an individual’s life:
Different Stages have Different Needs!
It’s not necessary that every person has the same requirement in that particular stage of life. The requirement may also change depending on your lifestyle, priority, etc. However, needs keep changing and evolving as life progresses and you reach the various stages of life.
The thumb rule is once you become a parent, any adult in your house earning income should have life-insurance coverage that will last until your youngest child completes college. If you have large financial obligations such as high credit-card debt or a mortgage, you could use life insurance to ensure that debt is covered. Also, since Life insurance is a very effective instrument for tax saving, many people use it as a tax saving tool, as well.
To determine if you qualify, most life-insurance policies require you to undergo a medical exam depending on your age, physical conditions and insurance amount opted for, primarily to check for high cholesterol and blood-sugar levels. Prior to issuing a policy the insurance company will also check things such as your medical history, hobbies, credit rating, alcohol-related issues and driving record, just to name a few. Factors such as age, smoking, family history and prior health issues can also drive up the premiums on a policy. Let’s start with the First Stage:
22-25 years
Career Start: If you are in this stage, then you are just beginning your career. Responsibilities are usually low at this stage. Whatever you earn, is mainly to sustain your own lifestyle and also build a portfolio for your future. The disposable income in this stage is usually very high. Thus, what you need at this stage is Protection and Savings.
The best protection tool from Life Insurance would be Term Insurance. It is for protection only.
For Savings, you could consider ULIPs or Endowment plans, depending on your risk appetite.
28-32 years
Rising Income: If you are in this stage, then your income has definitely gone up from what it was at the start of your career. Responsibilities are also rising with Marriage, Kids and Asset Acquisition being the top priority. Thus what you need at this stage is Savings, Growth, Liquidity and Protection.
For Savings and Growth, you could consider ULIPs or Endowment plans, depending on your risk appetite.
For Liquidity, your investment needs to be planned out according to the stage at which you would require the liquidity. As in, you could opt for Money Back plans, for regular cash inflow or you could opt for an ULIP, where the option for partial or complete liquidity is available after completion of three years.
The best protection tool from Life Insurance would be Term Insurance. It is for protection only. The earlier it is taken, the better it is for the security of the family.
35-45 years
Peak of his Career: If you are in this stage, then you income would almost be the highest as you have hit the peak of your career. Responsibilities are usually very high with the Kids’ Education and Loans being primary. Thus what you need at this stage is Investment, Security, Liquidity and Protection.
For Investment, you could consider ULIPs or Endowment plans, depending on your risk appetite.
For Security, your portfolio needs to be spread across various products, a mix of 2 or more products, provides higher security. There could be Insurance, Mutual Funds, Bank Fixed Deposits, Gold, Real Estate, etc. You need to carefully build your portfolio depending upon your requirement and risk appetite and financial goals in life.
For Liquidity, your investment needs to be planned out according to the stage at which you would require the liquidity. As in, you could opt for Money Back plans, for regular cash inflow or you could opt for an ULIP, where the option for partial or complete liquidity is available after completion of three years
The best protection tool from Life Insurance would be Term Insurance. It is for protection only. The earlier it is taken, the better it is for the security of the family.
Even a deferred annuity plan in this stage is very important for constant flow of money beyond retirement years.
48-55 years
Decreasing Responsibilities: If you are in this stage then your responsibilities would gradually reduce as you are approaching Retirement and your Kids are becoming Independent. Thus what you need at this stage is Security and Capital Protection.
For Security, your portfolio needs to be spread across various products, a mix of 2 or more products, provides higher security. There could be Insurance, Mutual Funds, Bank Fixed Deposits, Gold, Real Estate, etc.
For Capital Protection, the best protection tool from Life Insurance would be Term Insurance or Mortgage Protection. It is for protection only. The earlier it is taken, the better it is for the security of the family.
58-60 years
Retirement: If you are in this stage then you have almost reached Requirement. There would be a requirement for Lump sum Investment, with the amount received at retirement with Substitute Income. Thus what you need at this stage is Liquidity and Regular Flow of Money.
For Liquidity, your investment needs to be planned out according to the stage at which you would require the liquidity. As in, you could opt for Money Back plans, for regular cash inflow or you could opt for an ULIP, where the option for partial or complete liquidity is available after completion of three years.
For Regular Flow of Money, if you have not opted for Deferred Annuity Plans before, you could opt for an Immediate Annuity Plan at this stage would mean a regular flow of income from the lump sum investment. An annuity plan would provide pension according to the option chosen.
