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Most people are confused about how they should plan their Life Insurance policies and what is the best time to start planning? To my knowledge, the best time to start planning for your Life Insurance is when you get your first salary or anytime after that. If money is a constraint, then one can start planning for the same part by part. Also, “wants” will always surpass the “needs” and hence Life Insurance will never be a top priority at least in the minds of the young!


What is Life Insurance?

In simple words, life Insurance is an instrument through which certain compensation is paid to your family for the financial loss due to your death. So, if you are wondering why you should avail Life Insurance, then there are several reasons such as, it offers peace of mind, ensures that your debts will be taken care of in the event of your untimely death. Thus, simply, anyone whose death would leave his family in a financial distress needs insurance. Now, Different people have different requirements, which changes over the various stages of life. Let us consider the various stages in an individual’s life:

 

Different Stages have Different Needs!

It’s not necessary that every person has the same requirement in that particular stage of life. The requirement may also change depending on your lifestyle, priority, etc. However, needs keep changing and evolving as life progresses and you reach the various stages of life.

The thumb rule is once you become a parent, any adult in your house earning income should have life-insurance coverage that will last until your youngest child completes college. If you have large financial obligations such as high credit-card debt or a mortgage, you could use life insurance to ensure that debt is covered. Also, since Life insurance is a very effective instrument for tax saving, many people use it as a tax saving tool, as well.

To determine if you qualify, most life-insurance policies require you to undergo a medical exam depending on your age, physical conditions and insurance amount opted for, primarily to check for high cholesterol and blood-sugar levels. Prior to issuing a policy the insurance company will also check things such as your medical history, hobbies, credit rating, alcohol-related issues and driving record, just to name a few. Factors such as age, smoking, family history and prior health issues can also drive up the premiums on a policy. Let’s start with the First Stage:



 

22-25 years

Career Start: If you are in this stage, then you are just beginning your career. Responsibilities are usually low at this stage. Whatever you earn, is mainly to sustain your own lifestyle and also build a portfolio for your future. The disposable income in this stage is usually very high. Thus, what you need at this stage is Protection and Savings.

The best protection tool from Life Insurance would be Term Insurance. It is for protection only.

For Savings, you could consider ULIPs or Endowment plans, depending on your risk appetite.

 

28-32 years

Rising Income: If you are in this stage, then your income has definitely gone up from what it was at the start of your career. Responsibilities are also rising with Marriage, Kids and Asset Acquisition being the top priority. Thus what you need at this stage is Savings, Growth, Liquidity and Protection.

For Savings and Growth, you could consider ULIPs or Endowment plans, depending on your risk appetite.

For Liquidity, your investment needs to be planned out according to the stage at which you would require the liquidity. As in, you could opt for Money Back plans, for regular cash inflow or you could opt for an ULIP, where the option for partial or complete liquidity is available after completion of three years.

The best protection tool from Life Insurance would be Term Insurance. It is for protection only. The earlier it is taken, the better it is for the security of the family.

 

35-45 years

Peak of his Career: If you are in this stage, then you income would almost be the highest as you have hit the peak of your career. Responsibilities are usually very high with the Kids’ Education and Loans being primary. Thus what you need at this stage is Investment, Security, Liquidity and Protection.

For Investment, you could consider ULIPs or Endowment plans, depending on your risk appetite.

For Security, your portfolio needs to be spread across various products, a mix of 2 or more products, provides higher security. There could be Insurance, Mutual Funds, Bank Fixed Deposits, Gold, Real Estate, etc. You need to carefully build your portfolio depending upon your requirement and risk appetite and financial goals in life.

For Liquidity, your investment needs to be planned out according to the stage at which you would require the liquidity. As in, you could opt for Money Back plans, for regular cash inflow or you could opt for an ULIP, where the option for partial or complete liquidity is available after completion of three years

The best protection tool from Life Insurance would be Term Insurance. It is for protection only. The earlier it is taken, the better it is for the security of the family.

Even a deferred annuity plan in this stage is very important for constant flow of money beyond retirement years.

 

48-55 years

Decreasing Responsibilities: If you are in this stage then your responsibilities would gradually reduce as you are approaching Retirement and your Kids are becoming Independent. Thus what you need at this stage is Security and Capital Protection.

For Security, your portfolio needs to be spread across various products, a mix of 2 or more products, provides higher security. There could be Insurance, Mutual Funds, Bank Fixed Deposits, Gold, Real Estate, etc.

For Capital Protection, the best protection tool from Life Insurance would be Term Insurance or Mortgage Protection. It is for protection only. The earlier it is taken, the better it is for the security of the family.

 

58-60 years

Retirement: If you are in this stage then you have almost reached Requirement. There would be a requirement for Lump sum Investment, with the amount received at retirement with Substitute Income. Thus what you need at this stage is Liquidity and Regular Flow of Money.

For Liquidity, your investment needs to be planned out according to the stage at which you would require the liquidity. As in, you could opt for Money Back plans, for regular cash inflow or you could opt for an ULIP, where the option for partial or complete liquidity is available after completion of three years.

For Regular Flow of Money, if you have not opted for Deferred Annuity Plans before, you could opt for an Immediate Annuity Plan at this stage would mean a regular flow of income from the lump sum investment. An annuity plan would provide pension according to the option chosen.

 


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Diwali is the festival of joy, traditions and new beginnings. New clothes, jewellery, delicacies; the festival has it all. Across the country eager investors, await the festival to make new investments, as the legendary belief is that the money spent on Diwali would shower more prosperity in the coming New Year. Keeping this mind, we though it apt to suggest five great investment beginnings for this festive season. We hope the festival of light brings with it more wealth and prosperity, to each and every one of you.





1. Index Funds

The symbolic ritual of Muhurat trading in the stock market every Diwali is considered auspicious in the beginning of the traditional New Year. For those who aren’t familiar with the muhurat trading or lack the time for active trading, the index fund is a perfect option.

What is it?

Index funds replicate the stock market index (such as the BSE Sensex or the S&P CNX Nifty) by investing in the same stocks that constitute the market index. For example if you consider a Nifty index fund, it would invest in the same 50 companies, in the same proportion, that make up the Nifty.

Key Features

Costs -These funds are generally lower in cost in comparison to other funds, with an annual maintenance charge of around 1 to 1.5%, as fund managers just replicate the index without any active portfolio management.

Transparent and easy for investors to understand the composition of the fund.

Returns in line with the index- You stand to gain as the index moves up. However volatility of the index affects the returns on the fund too.

Who is it suitable for?

These funds are suitable for beginner equity investors and for those who lack the time and inclination to constantly monitor the stock market movements.

2. Gold ETF

Diwali is the time to buy precious metals, especially gold. Apart from the festive significance, gold is a great tool to hedge inflation. Here is a newer way to invest in the metal through gold ETFs.

What is it?

Gold Exchange Traded Fund (ETF) is very similar to your open ended mutual fund. Your money here is invested in standard gold bullion of 0.995 purity. The price of each unit of the fund is based on the price of 1 gram of gold. As the price per unit of gold increases, your fund appreciates in value.

Key Features

Purity of gold assured

Possibility to invest in small denominations of gold

A convenient way to store gold - You would no longer need to stack up jewellery or bars in those bank lockers or at home.

Who is it suitable for?

An ideal option for investors, keen on having gold as an asset in their portfolio.

3. Childrens Education Plan

Diwali is the time to shower blessings on our children. On this occasion, gift your child with a plan that would aid his educational milestones in the years ahead.

What is it?

Childrens education plans offered by insurance companies are designed to meet the costs of education of your child. Such plans also come with a life cover for the parent, in case of any unforeseen event. Some of the plans also capitalize on market opportunities, to generate higher returns.

Key Features

Sum Assured to the beneficiary.

Partial money back at key educational milestones of your child.

Tax benefits as per prevailing tax laws.

Who is it suitable for?

A child plan is suitable for investors who wish to have a single plan that lets them save for  their child’s higher education, plus have provides protection and tax saving. Plans may be market linked and therefore involve risk. So choose the one that suits your risk appetite and financial goal the best.

4. Family Health Plan

Wealth, health and prosperity go hand in hand. A health plan for your family would be a good investment this Diwali to protect them from all health concerns.

What is it?

Family health or floater plans is a comprehensive health insurance cover for your entire family against sudden illness, surgery, accidents or even terrorist activities.

Key features

Works out more cost effective than individual plans

Convenience of having one policy instead of multiple policies for different family members.

Age groups covered start from around 5 months to 80 years

Who is it suitable for?

Ideal for all families. Health insurance should be a priority in all households.

5. Company Fixed Deposits

For those wishing to earn a bit more on their Diwali bonus investment, fixed deposits floated by company could be a help.

What is it?

Companies float fixed deposits to raise capital for their operations. These deposits are unsecured instruments, unlike bank deposits which are insured up to a sum of Rs. 1Lakh.

Key Features

Offer a higher rate of interest anywhere in the range of 9% to 15% p.a.

Rated by agencies to help you understand the stability and outlook of the company.

Who is it suitable for?

Company fixed deposits are suitable for moderate to high risk appetite investors, keen on earning a bit more on their investments. These fixed deposits carry a default risk. So investors have to tread cautiously before investing.

 

 

 


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