While building up a sizeable corpus is necessary to fulfil many important goals, complementing it with adequate insurance coverage is recommended to secure oneself and loved ones from the vagaries of life.
While India has overtaken China to become the most populous country in the world, the country’s rising working-age population continues to power the nation’s economy. In fact, India has one of the youngest populations with a median age of just 28 years and could potentially utilise this demographic dividend to power past the $50 trillion mark in terms of economic output by 2050.
However, for this young population to improve their quality of life and support both older and younger dependents in the future, there is a need for prudent financial planning with adequate protection built into individual portfolios to cater to increasing health risks.
Need to inculcate healthy saving habits early on in life
With rising disposable incomes and lower familial responsibilities boding well for those in the early stages of their career, it is important that they instil healthy saving habits. This becomes even more pertinent when one factors the current inflationary environment and its debilitating impact on the future value of today’s money.
Therefore, it is highly recommended that working adults start their saving and investing journey as soon as they start earning, allowing their money to work for them as it compounds itself during their active work life. This puts them at an advantage later in life when planning to meet important milestones and protects them from economic emergencies brought about by health emergencies like the COVID-19 crisis.
Planning for major milestones by investing in saving instruments
Even though saving instruments usually generate lower returns than equity and other market-linked instruments over the long term, they promise stable returns that are almost devoid of risk and offer easy liquidity when in need of capital. While it is suggested that young adults invest more liberally in instruments that can potentially generate higher returns, it is highly recommended that saving instruments be used for building a corpus amount for different milestones.
These include planning for wedding-related expenses, welcoming a newborn into one’s family, saving for higher education needs, buying one’s dream home and eventually creating adequate financial capital sufficient for a comfortable post-retirement life.
While there are many avenues available including fixed deposits, debt mutual funds and government schemes such as public provident fund (PPF) amongst many others, it is advisable to opt for tax-saving instruments that provide more flexibility in terms of investment tenures and withdrawal conditions. Spreading one’s savings across multiple instruments with different tenures can make the realised gains and invested capital available for one’s use at different stages in life.
Securing against risks by purchasing relevant insurance products
Apart from regular savings and investing wisely in a clutch of tax-efficient saving instruments, it is important to financially secure your loved ones from the uncertainties of life. In case of unfortunate circumstances, having insurance protection that can cover hospitalisation-related expenses and provide financial compensation to you or your loved ones can deliver the necessary financial support.
Therefore, purchasing adequate medical insurance and securing your dependents with a life insurance cover that can meet their future financial needs even in your absence is extremely vital. It is also important to calculate how much capital is needed to provide for your family’s needs through pivotal moments in life and purchase relevant insurance products with healthy insured sums to alleviate their future financial burdens.
Why savings insurance plans make perfect sense
Life insurance products offer the best of both worlds, combining an inflation-beating post-tax savings rate with adequate life insurance protection to support you and your loved ones in case of unfortunate scenarios. This is made possible by accidental death or disability benefit cover; critical illness cover and even premium waiver add-on covers that can be availed by the policyholder.
Available in multiple avatars including child plans, retirement plans and even Combo solutions, these life insurance savings products provide tax exemptions of up to ₹ 1.5 lakh per annum on premiums paid (subject to conditions laid out under Section 80C of The Income Tax Act, 1961) while also exempting policyholders from any further taxes on the maturity or payable insurance amount under Section 10(10D) of the same act.
Furthermore, with the freedom to choose between annuity plans that provide a fixed income for life or a guaranteed payout post completion of the policy period, one can effectively plan for meeting different milestones with an added insurance net.
Alok Rungta, Chief Financial Officer of Future Generali India Life Insurance Company Ltd.
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Updated: 31 Oct 2023, 11:43 AM IST