There are two primary drivers for personal savings – first is the financial protection for one’s family, and the other being investment goals. Most investment goals are long-term in nature, exposing them to vagaries of life. Unforeseen emergencies can jeopardise one’s earnings, which can put future plans and financial stability of a family in peril. Having protection for investments can help customers in minimising the impact of financial vulnerabilities. While life insurance can shield from future uncertainties, one should also take measures to ensure the continuity of their investment plans when the source of income is compromised.
The focus must rest on ensuring continuity of existing investments to ensure that long term financial goals can be achieved despite the loss of a regular monthly income. To do so, one must take care that their insurance cover is adequate to meet most of the liabilities and the future needs of their family.
Therefore, it is important that protection and investment are not seen as independent of each other. In fact, they are closely intertwined and can complement each other in securing the financial stability and continuity of families. For example, a life cover equivalent to the amount of a home loan can ensure that the family does not lose its shelter even if the one paying the instalment in no more. Someone’s dream to send their child to study abroad can continue, even after they are no more able to put money into a systematic investment plan for the same if they have a guaranteed-return insurance cover.
Insurance is a tool that can protect financial well-being as well as the defined investment goals of a family. So how can you go about defining what portion of your investments need protection and what don’t? It can be compartmentalized between long-term and short-term investments towards life goals. Short-term investments are typically those that you believe are for a limited period of say one to three years, and long-term investments are those that are for five years and above. While life is uncertain, this simple bifurcation can help you manage the life cover you may need. This cover can be of two kinds as well. While pure protection plans help to extenuate the risk on future earnings in case of early death, traditional life insurance products can provide a long-term guaranteed return to people. These fixed returns can be used to offset the impact of fluctuating interest rates and volatile share markets on investment returns, thereby providing peace of mind to one’s financial ambitions.
In an ideal situation, everyone would be protected from all uncertainties, but life is unpredictable. In such a situation, it necessary to prioritise family’s requirements and life goals and provide security against imminent risks. One should be aware of the pitfalls of underinsurance - of not getting an adequate cover to ensure that each goal is sufficiently protected - and take care of it by careful planning. Apart from protecting the financial needs of one’s family, a prudently-defined insurance portfolio can also ensure that their life goals are fulfilled, no matter what turns life takes.
Today, you would see that several investment products offer life cover as well, and these aren’t from your life insurance companies. Thereby, really hitting home the point, that when you have investments towards your long-term life goals, typically with an investment plan of five years and above, do plan on getting them insured.
Tarun Chugh, MD & CEO, Bajaj Allianz Life