• Funding future goals through insurance

    A wide range of vehicles are available to fund future financial goals. These could be low risk – low return instruments like bank deposits and small savings, or higher risk products such as equity, which can offer potentially higher returns. Insurance scores over other investment vehicles in the following aspects:
    • Certainty
      Once a goal has been identified and a value for it has been crystallized, an insurance policy is an excellent vehicle to fund the goal. This is because one can rest assured that even in the unfortunate event of death or even critical illness, the sum assured will fund a future goal of the policyholder.
    • Tax efficient
      Maturity benefits of most insurance policies are tax free under Section 10 (10D) and the premium paid is eligible for deduction under Section 80C of the Income Tax Act, 1961.
    • Flexibility
      Insurance products, especially Unit Linked Plans, provide flexibility in terms of asset allocation to suit specific risk appetites, policy durations, premium payment terms and fund switching options.
    • Wider options
      Depending on the time horizon of the goal, the return required and the investor’s risk appetite, a broad spectrum of asset allocations between equity and debt is possible in a Unit Linked Plan. An investor may tailor his policy to suit his requirement.
    • Liquidity
      Most Insurance products offer good liquidity after the lock-in period to take care of any emergency requirement of funds. But they do have inherent deterrents in the form of charges to discourage unnecessary encashment.
    • Earmarking
      Very often an insurance policy is taken for a specific goal. This therefore can become a deterrent against utilizing these funds for any other purpose and also encourages continued contributions.
  • Planning for unforeseen events
    • Term insurance
      Term insurance is the simplest and cheapest form of life cover, which pays the sum assured on death. This is useful to simply provide for a family’s survival in the unfortunate event of demise of the bread winner. This can also be used to cover repayment of any debt of a policy holder by simply assigning the policy to the creditor. Upon maturity or claim on the policy, the proceeds are paid to the creditor. Loan Cover policies are a variant where the sum assured keeps reducing in line with the loan balance.

      Term plans have many endearing features. To begin with, they provide life cover for different periods or terms at the lowest possible premium. For instance, a 34-year-old person can get a Rs 25 lakh cover for an annual premium of Rs 9,550 for 25 years, a coverage that will cost him about Rs 95,550 and Rs 162,550 in endowment and money- back policies, respectively.
  • Planning for retirement
    • Pension Plans
      Indian life expectancy has improved dramatically over the years due to availability of advanced medical facilities. However, a longer working life may not really be possible due to occurrences of life-style induced illness and high burn-out rate. The evolving demographic balance with plenty of young talent becoming continuously available may also be a deterring factor to a longer working life unless one is self employed.

      Consequently, our retirement life span could well be as long as our active working life span. This means that we have to build a solid corpus during our active life to maintain our life style for the long post retirement life if we are to enjoy the true meaning of the word “retirement”. Pension Plans help us build up our savings during our earning years and provide us a lump sum on retirement. This lump sum can then provide us a retirement.

      A retirement plan may be broadly divided into two phases, namely accumulation (pre-retirement) and distribution or consumption (post-retirement). We assume a 30-year old who plans to retire at the age of 60 and expects to live till age 80. His accumulation phase is between age 30 and 60 when he builds his retirement corpus and distribution phase is between age 60 and 80 when he draws down this corpus for his living. Retirement Plans ensure that the distribution phase of your life is as comfortable as your earning years.
  • Insurance as an inflation shield.
    • Unit Linked Savings Plans
      Inflation lowers the purchasing power of money and makes a dramatic cumulative impact over the long term. It reduces your real income year after year as your cost of living keeps increasing. So, it must be taken into account while framing financial goals.

      Insurance products such as Unit Linked Plans help us combat the impact of inflation on our financial goals by providing the option to invest in equity, which is known to deliver one of the best returns from all asset classes, over the long term. Ignoring inflation would result in our savings falling short of the estimated value of future goals, especially over the long term.
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Disclaimer: Mutual Funds and securities investments are subject to market risks and there is no assurance or guarantee that the objective of the Scheme will be achieved. Past performance of the Sponsor/AMC/Fund or that of any scheme of the Fund does not indicate the future performance of the Schemes of the Fund. Please read the Key Information Memorandum and the OfferDocument carefully before investing.