What is the best time to buy life insurance for yourself and your family?

While returning back from office today, I got a call from Mithu, my 4year old daughter requesting me to get few stuff for her. While I was busy talking to her over mobile a car swept past me and missed hitting me just by an inch. I was held aback. Standing in the middle of the road my hands began to tremble and all I could think of was my family and my little daughter Mithu who was desperately waiting for me to return home. 

Various thoughts began to cross my mind. The only thing I could think of was what would have happened if I had been hit by that car or had been left physically disabled or dead post the accident. Who would have taken care of my family? Being the sole earning member of my family, I was scared about the security of my family. And this very fear got me thinking about the nine letter word ‘Insurance’ which has been by and large ignored by me till date. 

Suddenly I remembered having read recently that the frequency of traffic collisions in India is amongst highest in the world. Every year more than 135,000 traffic collision related deaths are reported in India (Source: National Crime Records Bureau, India)

 

All my life I and my friends ridiculed insurance agents. We ignored their calls stating that we were not prepared to buy an insurance plan at the moment.   But this incident made me realize my mistake and I immediately contacted my friend who works with a well-known life insurance company. He then explained to me the various types of Life Insurance plans and advised me on the one suitable for me.

Did you know that even though the Indian Life Insurance sector is biggest in the world with about 360 million policies and expected to grow at 12-15% over the next 5 years, the penetration of Life Insurance compared to our huge population is only around 3.4% only at the end of the financial year 2015-16! According to the last Swiss Re’s last sigma report the penetration was only 3.30% in 2014-15. With the expected growth rate as mentioned above, the penetration will still be at 5% level only by 2020.

Insurance aversion is a common phenomenon. While some lack the basic knowledge, others do not know how and what to buy. What about you? Do you know why and when you need insurance? 

We have heard, one must enjoy life and live it to the fullest! But what we do not hear or realize is that along with the enjoyment of life also comes are the various responsibilities and uncertainties. Responsibilities towards your loved ones come in various forms and uncertainties do not come after giving a notice. 

Let us see what our main responsibilities are -

1. Towards our Parents - When they grow old and are no more in a position to earn, it is our responsibility to look after their daily needs, health and other overall well being.
2. Towards our Spouse - Once we are married and our spouse is not working, it is our responsibility to look after his/ her financial needs.
3. Towards our children - Once they are born, right from their childhood to schooling and higher education and till they are settled in their respective lives, it is our responsibility to look after them.

Uncertainties just like responsibilities also come in various forms and without any notice. These uncertainties lead to disruption in our normal day to day life and thus leading to disablement in fulfilling our responsibilities. In such situations, how do we expect to meet the financial needs of our family? Who will take care of the lifestyle they have been used to? The education of children and financial need of our spouses and so on. 

But do not worry -There is a solution to every problem and so does this problem have a solution. The solution to this problem is what we call ‘LIFE INSURANCE’. 

Yes, life insurance can help you ensure financial security for yourself and your loved ones. But do you know when to buy a life insurance policy?

Anybody can purchase any Life insurance policy whenever he/she wishes to. But only purchasing a policy is not the right solution to this problem. Purchasing the right kind of policy at the right time depending upon your need is the ultimate solution to all problems.

For example: A Life Insurance Child Plan can be purchased once a child is born, but a term plan cannot be purchased when one is very old. Similarly, a child plan cannot be bought before the birth of the child, but an endowment plan can be purchased immediately after one begins to earn.

Let us understand that when it is the right time to buy an insurance policy by following the various life stages of Santosh Kumar, an IT professional.

1. Young and Unmarried

Santosh a young IT professional has just passed out of college and has joined a leading IT company in Bangalore. He has no responsibilities on his shoulders as his parents are still earning. He is very happy with his starting monthly salary of Rs 65,000. During one of his candid conversations with me, he told me about his dream of retiring from his job and owning a farm house at age 55. He further added that he would like to spend his retirement life farming and growing vegetables in his quiet space. 

Impressed by his thought, but with a doubt in my mind I asked him who does he plan to fulfill his dream. I asked as I knew, he spent major part of his salary towards shopping, going to the best restaurants and buying the latest gadgets. 

He was clueless and confused and it was then that I explained him the benefits of an Endowment Insurance Plan.  An endowment plan provides life insurance benefits along with an assured amount to be returned to the investor on maturity of the plan period. Endowment plan help an individual to plan for his future expenses. Just by investing a small amount from his starting salary Santosh can be rest assured of getting a decent lump sum amount for his future needs. Endowment plans should be purchased at an early age when an individual is free of huge responsibilities and can allocate fund for future needs. The other advantage of starting early is that cost of premium will be less. 

2. Married

Now, that Santosh is well settled in his job, his parents decided to get him married. He is now happily married and his spouse stays at home and looks after the family. It is a well balanced family where one earns and the other takes care of rest of the things in day to day life. 

Since death is uncertain, what if something happens to Santosh and he dies? Who will take care of his wife for rest of her life? The answer to this question lies in a Life Insurance Term Plan. Term Insurance Plans aim at providing financial security to the individual’s family or the nominee in case of untimely or premature death of the policy holder. The policy buyer is required to pay certain premium at regular intervals. Term Insurance Plans usually do not assure any returns at the expiry of the term period. By investing a small amount in a term plan at this stage of his life, Santosh can ensure that his wife is financially secured and able to maintain the same standard of living in case of his premature death.

3. Childbirth

Santosh and his wife are expecting a baby soon. All are very happy. But raising a baby also means that the expenses start right form childbirth to vaccinations, schooling, higher education and then wedding. Fund is required at every stage of child’s life. Then how will Santosh manage to meet these expenses in his absence? How will he make sure that his child gets the best of all even if Santosh is not around? 

Well, a Life Insurance Child Plan is what he needs at this phase of his life. Child plans are insurance plans whereby, the benefits of the plan are passed to the child or the nominee in the event of untimely death of the plan buyer. A child plan secures the future of the child in case of untimely death of his parents. The plan continues even after the death of the parent and no premiums need to be paid but future benefits are paid by the Insurance Company.

4.Middle Age

Santosh has now secured the future of his family by investing in various insurance plans. Now he realizes that he has certain part of his salary which he may easily afford to invest in some other Insurance plans in order to ensure wealth creation for himself. Santosh can now choose to invest in Unit Linked Insurance Plans or ULIPs, as it is popularly known. ULIP is a unit linked insurance plan which not only ensures the life of the person but also provides market linked return by investing in various stocks, shares and other securities. As the investment of ULIPs are market linked the returns are far superior than other Insurance Plans and investment products like, Fixed deposit, postal savings etc.  

5. Retirement

Now that Santosh has ensured the security of his family members and also planned for wealth creation, it is time for him to look after his own responsibilities. You remember his dream of owning a farmhouse and living a relaxed life post retirement? However, if he spends almost all his salary in fulfilling the desire of others how would he make any substantial savings for himself? Then how can he expect to live a relaxed life post retirement without any earning or savings? 

We know he has investments in an Endowment Life Insurance Plan. But an Endowment Plan will offer him only a lump sum amount at the end of maturity period which might not be sufficient for him to meet his monthly expenses. Therefore, what he now needs is a Pension plan which will offer him regular income on a month on month basis post retirement. While he can make use of this money to take care of his monthly expenses he can use the maturity proceeds received from other plans to invest in his dream. Therefore, he should invest in a Life Insurance Pension Plan.

Remember, the life insurance policy to be purchased depends on ones need and not on the general trend. You must plan your Insurance needs based on the amount you need in future and not based on your current expenses. The average Inflation rate in India is around 8% therefore you should determine the future cost by taking into account the inflation rate. In a nutshell, before purchasing any Life insurance Plan you must properly analyze your needs like Santosh and the premium amount that you can afford till the policy tenure. You should work out your future needs carefully with an IRDA licensed Insurance Advisor or the Insurance company and make the purchase decisions accordingly. A clear understanding of the various products and the benefits provided by them will help you decide when and what policy should be you buy.