Your Investment Objective and Insurance



By Anuj Bhagia

In our lives, we dream to stay in spacious homes, plan to build enough corpus to maintain the same standard of life for our retirement, we also plan to have sufficient funds to provide our children good education. Many of us also desire to have a luxurious car.

What we don’t realise is that one wrong financial decision may shatter our dreams into tiny pieces. Thus every financial decision that we make needs to be evaluated long and hard, to ensure that every penny which we invest works as hard as we do.

Insurance is one such financial investment that can help us achieve our financial goals. Be it your child’s education, your retirement corpus, buying a home, etc. There are various insurance plans that can suit up for each of our requirements. Let’s try and understand how:

Child Plans: This plan helps to provide funds for your child’s education at pre-fixed intervals. This in turn assists the parent to meet their child’s financial needs at various important years of his/her life. Child plans come either bundled with a host of inbuilt riders like family income benefit, term rider, college fund rider or they offer them as separate add-ons to the policy.

What these riders do is ensure that your child is still able to live the dreams that you both had decided upon, in case of an unfortunate event. They come in both traditional and ULIP (unit linked insurance plan) variant and give returns ranging from 4%-15% depending on the type of the product, tenure of policy & fund option chosen. Thus, the purpose of these plans is to take care of your child’s financial goals.

Highest NAV Plans: These plans are usually available for a short-term such as 10 years. What they do is offer the policyholder a guaranteed amount of money at the end of the policy term irrespective of market performance. Such funds offer the returns based on highest NAV (net asset value) recorded over a period time. They are good choice for short term investments.

Single Premium ULIPs: These plans are one-time payment plans which can be used to park either excess money received through a windfall or bonuses received from your employer during festival time. Available for a period no longer than 10 years they are good short term investments. Thus, these plans like highest NAV plans are good for short term investments.

Regular Premium ULIPs: These plans are the actual corpus building plans which offer high returns as the money invested in them is usually for a longer duration, more than 20 years. These plans help to average out your cost of investment, and moreover provide capital appreciation. Many buyers still won’t agree with the same because when people invest in ULIPs they are usually not forewarned or do not read that ULIPs are front loaded (most charges in a ULIP are deducted in the initial years).

If we compare the charges of mutual funds with that of ULIPs, mutual funds would sound lower, but you need to remain invested in ULIPs for more than 15 years to get its true returns. They also offer a lot of flexibility and are good for not so market savvy investor. The aim of these plans is to provide corpus build up for a secured retired life.

Traditional Plans: These plans guarantee policyholder some benefits along with the sum assured at the time of maturity of the plan. These plans consequently help the policyholder to provide for a long term investment option. Traditional plans are not as flexible as ULIPs and returns are largely low when compared to ULIPs. But provide life cover for a long period of time.

Health Plans: An unexpected medical expenditure can sometimes leave a gaping hole in your pocket financially, considering today’s cost of health care. A health insurance plan is something which helps avoid this. A health insurance plan reimburses all your permissible medical expenses up to the sum assured in case of an emergency. Also in case of a planned medical treatment, a health insurance comes to the forefront and helps you pay your hospital bills.

Car Insurance: Though mandated by law, car insurance acts as a major cushion in case of an accident. It helps pay off all accidental claims or third party claims in case of an accident caused due to self. It also provides an accident cover for the driver in case of an unfortunate event.

If the correct insurance plan is chosen for the right purpose insurance products can be a sure-shot trouble shooter for the customer. Thus before investing in any type of an insurance plan, it is essential for policyholders to check the nature of plan and if it fulfills their requirements.

The writer is head—marketing & corporate communications, Policybazaar.com.

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