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How Much Cover To Take & What Products To Look At A Specific Age

It is important for the customers to critically look at the above factors so that the right kind of products are chosen and right level of cover is purchased

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A life insurance product is by far the most comprehensive investment option for the customers offering the best of all the worlds - right from protection, investment and liquidity to tax benefit. However, with so many products floating around in the market, it can be a rather daunting task for even the more financially sophisticated among us to decide what product to consider at what age and how much insurance cover to take.

When making this decision, it is important for the customers to think what are their needs and objectives. For example, the needs of someone who is unmarried, in his 20s and early in his career will be very different from someone who is in his 40s and is married with children.

While it is not easy to cover all the products in a single article but I will try to talk about some of the most critical insurance products.

Pure Term Plan

There are some needs which will remain pertinent throughout the working life of an individual. For instance, it is advisable to take a pure term insurance plan as soon as you start working to safeguard your dependents from any possible financial uncertainties arising due to an unfortunate event, the level of cover being dependent upon your current income and the expected remaining working life. Starting early also ensures that your premiums are relatively lesser as against buying this product at a later stage. One useful variant would be a product where the cover increases automatically at regular intervals in the future. This will allow your cover to remain adequate throughout your working life without the need to purchase additional protection when both your income and liabilities increase.  In addition to the pure term plan, one should also consider buying additional protection against critical illnesses and disabilities so that protection is provided both against death as well as occurrence of other events which also are likely to result in loss of income for a significant period of time.

Child Plans
One of the biggest responsibilities of the parents is to support the kids in their major future life events like higher education or marriage. In order to save for these major expenses, it is important to consider a product which will ensure that these financial goal are met even if something unfortunate were to happen to you. Hence a Child Plan may be a better product compared to other savings products as it offers the additional protection of premiums being funded by the Company in case the need arises. Further, one should look at investing in this product early on in the child's life so that there is sufficient time for the savings to grow with the amount of premium depending upon the expected expense amount and the time to maturity.

Retirement/Annuity Plan
Maintaining the same lifestyle post retirement without having to depend on any one is one of the key long term financial goals, which requires early and disciplined savings. This can be achieved through a variety of savings/pension plans available in the market. The idea is to build a corpus by the time of retirement so that you have sufficient funds to meet your medical expenses and also enjoy the post retirement leisure time. It is important to assess how much retirement fund is being targeted and the time to maturity to estimate the premium amount. Once an individual reaches retirement, it is critical to consider how that corpus will be invested to provide an income in the retirement period. An annuity product will protect you from the risk of outliving your savings and hence is a superior proposition as compared to investing in other instruments. One useful variant of this product would be a joint life annuity whereby the annuity payment continues even post the death of the individual at a reduced rate payable to the spouse.

Overall, it is important for the customers to critically look at the above factors so that the right kind of products are chosen and right level of cover is purchased. It is also the responsibility of insurers to turn the attention of customers on these factors so that they are better informed to make choices which are in line with their needs.

Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house. Unless otherwise noted, the author is writing in his/her personal capacity. They are not intended and should not be thought to represent official ideas, attitudes, or policies of any agency or institution.

Tags assigned to this article:
personal finance insurance investment

Akshay Dhand

The author is Appointed Actuary, Canara HSBC Oriental Bank of Commerce Life Insurance

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