The right time to begin investing is when you are young and are in a better position to manage investible funds after meeting all your expenses. It is during this time that you can devise a workable financial plan and set your goals to secure the future of your family and build a healthy corpus for your retired life. At a young age you not only have the widest possible options, but you can also contemplate risky investments to add muscle to your projected wealth. Among the identified and obligatory investment options with great import is your choice of life insurance policy. It is an important tool that helps you to secure the financial future of your family as well as create wealth in the long term. Life Insurance companies have a wide variety of plans to meet your specific needs with a budget and objective in mind.
Why is insurance important?
Life insurance provides financial security to your family in your absence with an assured death benefit payout to your beneficiary if you meet death during the policy term. If you survive, you are paid maturity benefit comprising sum assured and bonus during the term period. All this and much more is provided against a fixed sum called premium. Insurance premium has flexible options of monthly, quarterly, half-yearly, annual or one-time payments. To top it all, Life Insurance provides for handsome tax concessions under the IT Act 1961. Other than life insurance products, there are also general insurance products which one needs for protection against financial losses in the form of Health Insurance, Motor Insurance, Home Insurance, etc.
What are the types of Life Insurance offered by the insurers in India?
The various types of Life insurance products available in the Indian market with multiple variants of each type make you spoilt for choice. Some of the indicative plans are:
- Term Plan: This is a basic insurance product and is also referred to as a pure protection plan. The key feature of best term insurance plan is that it offers a very high sum assured at an affordable On expiry of the term, the premium is not returned.
- Endowment Plan: This is also called insurance plus savings plan. You are provided with life cover with a savings element which is allowed to grow with additions declared from time to time.
- Unit Linked Insurance Plan (ULIP): It is a hybrid product that provides for insurance coverage and investment benefits yielding high returns through market-linked
- Child Plans: Your aspirations revolve around the dreams of your children. These plans specifically cater to the milestones comprising your child’s education or marriage.
- Retirement Plans: These plans allow you to plan for your retired life that essentially works out in your favor with a handsome corpus or pension income when you have no other means of earnings to fall back upon.
- Health Plans: These plans meet your medical expenses in the event of emergencies, both for you and your dependents, including your parents.
Benefits of Life Insurance:
Life insurance is not viewed as an investment vehicle, but for the many advantages, it provides you with every plan. Some of the key benefits may be enumerated thus:
- Life Cover: It protects you from life risk, in turn securing the financial future of your family in your absence.
- Investment Vehicle: Many plans offer you the means to earn returns from your investment in addition to the life cover.
- Wealth Creation: With returns for investment assured with most plans, you can build wealth, in the long run, catering to your future needs.
- Tax Savings: Generous concessions in tax exemptions make Life Insurance products doubly paying and an important cog in the wheel of financial planning. Premium paid in a financial year to a maximum of Rs.1.5 lakhs is tax-free under Section 80C of the IT Act 1961. Death benefit and maturity proceeds are exempt under Section 10 (10D).
What insurance products should the young choose?
The biggest benefit that beckons the young towards insurance products is the premium amount. The premium is fixed primarily by age; so the young start with the lowest premium. You are also able to buy policies with the longest terms which is a boon as the creation of wealth works best over the long term. When you are young the policies to choose to keep your goal in mind are:
- Term Plan: The best term insurance plan offers you the opportunity to protect your family in your absence with a high death benefit at an affordable cost. .You can augment the cover with several riders like Accidental Death, Disability and Critical Illness. Generally, there is no payout on maturity. LIC online term plan is one such. It is named e-Term which offers a term range spanning 10 to 35 years. The cover and premium vary if you are a non-smoker and you attract additional benefits.
- Health Plans: This plan is another must when you are young. It not only provides for meeting financial expenses in medical emergencies, but it also provides you with tax concessions under Section 80D of IT Act 1961 for Rs.25000 paid in the financial year. You can augment your tax concession by buying health insurance for your parents who also get an exemption for a like amount, but if any of them is a senior citizen, the amount is Rs.50000. In case you have a family it makes good sense to buy a floater health insurance which covers for the entire family. You can consider buying Top-ups for enhancing the cover with a much lower premium.
- Unit Linked Insurance Plan (ULIP): This plan scores over the endowment plans because of the high returns these plans offer from market-linked instruments in addition to the normal life cover. They come with a lock-in of 5 years. These plans are also tax-free under the provisions of Sections 80C and 10 (10D) of the IT act 1961. The high returns very similar to those from Mutual Funds, help you to nurse the health of your wealth.
Bottom Line:
The advantage of your age helps you to buy the best term insurance plan with a high sum assured over the longest term possible at a low price. When you are young, the options open to you are many and you are amenable to take risks. In such a scenario, opting for LIC plan is an ideal option.
