In the current environment, where uncertainty has become an integral part of every family across the globe, insurance has gained in importance. Whether it is health or life cover, families seem to be more willing to shell out money to protect themselves and to cover risk.While the domestic insurance industry still does not offer products like cover against loss of employment, the existing basket of products offer enough options in the current scenario.The first insurance policy, often, begins as a tax-saving instrument as the insurance premium up to a limit of Rs 1 lakh qualifies as a tax-saving instrument. For a young investor, it is not a bad idea to begin the tax planning exercise with an insurance product.
For instance, if an individual is required to make an investment of Rs 50,000-60 ,000 in tax planning, he can look at allocating at least Rs 25,000-30,000 to an insurance plan. This would allow him to take an insurance cover of Rs 5-10 lakhs which would be the basic cover and the rest can be in investment-related products such as equity-linked saving schemes (ELSS).While the premium ensures life cover for his dependents, the other options will help in building a corpus for his future needs.For those in the early 20's, a unit-linked insurance plan (ULIP) would be a better option as it allows them to have exposure to equity. More importantly, they have a long tenure at their disposal which is a big positive factor for equity exposure. Since ULIP also allows flexibility such as premium discontinuation and combination of investment schemes, this should be the first choice.
The less aggressive ones can look for endowment or returns guaranteed products if insurance cover is of primary importance. Those with dependent families can stick to pure term plans as this will allow them to have good life cover of around Rs 25 lakhs for a nominal premium.That brings us to the question of how much is the right insurance cover. There can't be a single answer as it depends on a number of factors such as lifestyle, the extent of dependence of the family on the individual and more importantly on the liability.While at a young age, the liability factor will not be of significance, it assumes importance over a period of time. To address the issue of needed life cover, one can look at 20 times their annual income to begin with. This will ensure enough cash flow for the family in the event of any emergency.
The other insurance product which is easily acceptable is a child plan. In fact, this can be an important component of the overall portfolio for those who don't have enough asset backing at an early stage of life. For instance, young parents can look at child insurance plans as this ensures both protection and the needed corpus for funding the child's education.Though it can be argued that a systematic investment plan (SIP) in an equity fund does the job of wealth creation, a child insurance plan also does the job of protection.As far as the burden of insurance charges is concerned, it becomes less relevant when the child plan has a tenure of more than 10 years. As pointed out earlier, child plans also take care of insurance cover, and ensure the continuance of the investment too, in the event of death of the parent, which is not the case with a SIP.
By Srikala Bhashyam, ET Bureau
For instance, if an individual is required to make an investment of Rs 50,000-60 ,000 in tax planning, he can look at allocating at least Rs 25,000-30,000 to an insurance plan. This would allow him to take an insurance cover of Rs 5-10 lakhs which would be the basic cover and the rest can be in investment-related products such as equity-linked saving schemes (ELSS).While the premium ensures life cover for his dependents, the other options will help in building a corpus for his future needs.For those in the early 20's, a unit-linked insurance plan (ULIP) would be a better option as it allows them to have exposure to equity. More importantly, they have a long tenure at their disposal which is a big positive factor for equity exposure. Since ULIP also allows flexibility such as premium discontinuation and combination of investment schemes, this should be the first choice.
The less aggressive ones can look for endowment or returns guaranteed products if insurance cover is of primary importance. Those with dependent families can stick to pure term plans as this will allow them to have good life cover of around Rs 25 lakhs for a nominal premium.That brings us to the question of how much is the right insurance cover. There can't be a single answer as it depends on a number of factors such as lifestyle, the extent of dependence of the family on the individual and more importantly on the liability.While at a young age, the liability factor will not be of significance, it assumes importance over a period of time. To address the issue of needed life cover, one can look at 20 times their annual income to begin with. This will ensure enough cash flow for the family in the event of any emergency.
The other insurance product which is easily acceptable is a child plan. In fact, this can be an important component of the overall portfolio for those who don't have enough asset backing at an early stage of life. For instance, young parents can look at child insurance plans as this ensures both protection and the needed corpus for funding the child's education.Though it can be argued that a systematic investment plan (SIP) in an equity fund does the job of wealth creation, a child insurance plan also does the job of protection.As far as the burden of insurance charges is concerned, it becomes less relevant when the child plan has a tenure of more than 10 years. As pointed out earlier, child plans also take care of insurance cover, and ensure the continuance of the investment too, in the event of death of the parent, which is not the case with a SIP.
By Srikala Bhashyam, ET Bureau
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