Beyond Protection: How life insurance can transform your financial strategy? Here are 4 key ways

Life insurance is not just a protection tool providing financial security; it’s a strategic tool that can enhance one’s financial plan, offer wealth building opportunities and create a legacy. While the traditional perception of life insurance often centers around protection, its benefits are far more nuanced. From managing debt and emergencies to planning for retirement and building a legacy, life insurance can be leveraged to boost financial well-being at different life stages.

Debt risk management and emergency preparedness

In today's consumer-driven society, easy access to credit has led to a surge in household debt, reaching approximately 40% of GDP.While enjoying the benefits of easy credit, a proper financial plan to manage debt becomes critical. Term insurance is a cost-efficient financial tool that provides a high sum assured in case of an unforeseen event,safeguarding against potential loss of assets or compromised lifestyles.

Choosing an adequate sum assured, typically covering about 10-15 times the annual earnings plus existing debts like housing loans is crucial. Regular reviews and adjustments ensure the coverage aligns with changing financial circumstances. Additionally, credit life insurance, bundled with the housing loan can offer peace of mind.

While maintaining liquid assets like bank FDs equivalent to 6-12 months' expenses is prudent, having suitable health insurance coverage is essential. Critical illness, hospital cash and surgical benefit riders provide an additional safety layer along with payouts that can substitute for loss of income due to illness.

Strategic coverage and cost savings

Balancing comprehensive coverage with cost efficiency is crucial for effective financial planning. While term life insurance solutions provide maximum protection at affordable premiums, other options like savings-oriented life insurance plans offer choices to suit individual investment goals, risk appetites and investment horizon while also being tax-efficient. Products like ULIPs offer market linked returns, lumpsum benefits, periodic income or a combination of both.

ULIPs are low-cost, tax-efficient insurance cum investment instruments offering unlimited free switches to rebalance investment portfolios according to market conditions. Individuals can tailor their coverage and meet their specific needs and achieve cost-effective financial protection by considering and choosing from various types of available plans.

Education investment

According to a Bank Bazaar’s report, education inflation stands at approximately 11-12%, implying that the cost of education may potentially double every 6-7 years. Primary concerns of all parents are ensuring finances for children’s education and safeguarding their own well-being to continue supporting their children’s dreams.

Life insurance can serve as a powerful tool to address both these concerns. Initiating child education plans early can secure children’s future by maximizing the benefits and providing ample time for funds to grow. and accumulate. Life insurance emerges as a powerful financial tool which addresses both concerns of a parent.

Retirement planning and legacy building

Longevity in India is improving, with many expected to live beyond 90 years. Considering retirement at age 60, this means a good 30 years without a regular income. Inflation is another challenge to be acknowledged while planning for retirement. Assuming a 5% inflation rate, the current monthly expense of Rs. 1 lakh would likely increase to Rs. 2.7 lakh in 20 years and Rs. 7 lakh in 40 years. Achieving this would require a retirement corpus of approximately ₹6.5 cr in 20 years and ₹16.5 cr in 40 years.

Historically, interest rates on bank deposits decline, a trend likely to continue as India progresses towards becoming a developed economy. Since expenses, including medical costs, are expected to rise over time due to inflation, relying solely on interest from bank deposits may not be sufficient. Therefore, proactive planning and leveraging insurance as an investment tool is essential to build sufficient corpus for tomorrow’s expenses.

Life insurance is not only a safeguard against uncertainties but also as a powerful instrument for achieving long-term financial goals even when you’re not around. By strategically integrating different life insurance products into their financial plans, individuals can secure their loved ones' future, build a robust retirement corpus, and leave behind a meaningful legacy.

Sameer Bansal, MD & CEO, PNB MetLife