By Tarun Chugh
Indians have spread to virtually every corner of the globe and have made their mark in the chosen line of business or profession. As an Indian living abroad, it definitely makes good financial sense to connect with the roots of your lineage and make wise investments back at home, especially when the country is in a developing phase.
Whether you are pursuing a dream job abroad and at some point wish to settle back in India post retirement, or if you have ageing parents living on their own in India and are dependent on you for financial support, it is prudent to take calibrated financial decisions, especially at a time when uncertain economic conditions are prevailing in the more developed countries. It is also imperative to provide for long term security and achieve financial goals for you and your dependents. India is one of the fastest growing economies in the world and various economic estimates and research reports peg India’s growth around 6% – 7% annually. This is significantly higher as compared to other economies in the developed world where there is either nominal or no growth. This makes India an attractive investment destination for NRI’s. Also, given the prevailing interest rate regime in India, an NRI will earn a lot more on his bank deposits in India as compared to his country of residence. This also makes a compelling argument for the NRI to park his money in bank deposits in India.
An NRI has various options to choose from when he / she is structuring his financial plan. There is no one-size-fits-all investment strategy that can be prescribed for an NRI as such and an ideal financial plan should have an optimum mix of various asset classes. However, we would like to lay stress on the role of insurance as an asset class for an NRI in meeting his and his family’s financial goals. Life insurance products can help to address an array of financial needs and goals of an NRI as they can be customized for specific purposes.
To take an illustration, Ashok is 40 year old NRI based in London working as a senior project manager in a software company. He has two children aged 5 and 9 years old, and his wife Asha is a home-maker. His parents are retired and live in Pune. They have no source of income and rely on their son Ashok for their regular expenses. Mr. Ashok can build a portfolio of insurance products that can help address his following important financial goals.
- Life cover for the financial security of his family
- Provision for his children’s education
- Regular guaranteed income for parents
- Wealth creation for himself and his spouse
Life cover for the financial security of his family
Ashok has five dependents and therefore it is crucial that he is adequately covered. Pure term insurance plans are ideal for this purpose. Currently, online terms plans that are available are competitively priced and convenient to purchase. A term insurance plan will ensure that Ashok’s family is financially secure and that their financial aspirations are not compromised in case of the unfortunate event of Ashok’s demise.
Provision for his children’s education
- Provisioning and creating a corpus for children’s education must ensure the following:
- Wealth creation over the long term to ensure cash payouts at key educational milestones of his children
- Financial security to ensure that the education of the child does not get compromised in case of an eventuality to the bread winner of the family
In case anything happens to.Ashok, the investment for his children’s future should continue and the children should get the benefits when required. Hence, investing in child plans designed by insurance companies will ensure that the financial plan for the child remains unhindered even in the face of an eventuality to meet cash payouts on key educational milestones. In such plans, upon the death of the parent, the family gets a lump sum amount and the life insurance company pays all future premiums on behalf of the policy holder.
Regular guaranteed income for parents
Ashok’s parents need a guaranteed income to meet their day-to-day expenses. The product that addresses this goal is the Immediate Annuity plan offered by life insurance companies. Ashok can purchase an Immediate Annuity product which will then generate regular income for his parents in India. Additionally, he has the option of choosing the frequency of the payouts. Upon the death of the last surviving parent, Ashok will get the entire investment amount back which he can repatriate to his country of residence.
Wealth creation for himself and his wife
Long term wealth creation requires Ashok to systematically save and invest in avenues which provide superior long term, risk adjusted returns. As an emerging economy, India has exhibited a robust rate of growth over the recent past and has potential for sustained growth in the future as well. Given this, investing in equities in India would help augment long term wealth creation. Unit linked plans offered by insurance companies provides an opportunity and flexibility to the customer to structure his exposure to the debt and equity markets depending on his/her financial goals and risk taking appetite. These products present an opportunity to the customer to participate in and reap economic rewards of India’s growth story. The dual offering of protection and long term wealth creation makes Unit Linked products an attractive proposition for NRI’s.
To conclude, life insurance offers an NRI an opportunity to plan for and meet his various long term financial objectives. As an integral component of financial planning, insurance can play a critical role in ensuring the long term financial security of the NRI, his family as well as his dependants who may be residing in India.
The author is Chief Distribution Officer – ICICI Prudential Life Insurance