A goal without a plan is just a WISH!
While setting up a goal, whether personal or professional, we often underestimate the financial assistance needed to achieve them. Every milestone in our life is often accompanied with some additional responsibility and expenses, whether getting married or parenthood, retirement etc. We must involve ourselves in financial planning, which would help us to achieve it.
Well, it may surprise you, but your life insurance can provide you that financial assistance which you need to achieve your goals. So, before you ask how to use life insurance to achieve financial goals? (Ahh, I know you must have read the heading) , here is the answer!
We have created three types of financial goals, one, Short term Goals, like buying car, or house, going for a holiday trip etc. Second, Long term goals, like retirement plan, or child’s higher studies, and the last, end term goals, where you plan to provide a substantial amount of monitory support for your nominee.
Short Term Goals
Short term financial goals are the ones where you need money in near future, say 4-5 years, and the amount is not too big. Like going for a holiday trip with family, or buying a car, or funding your child’s education. Basically you need fund in coming years, so you should select money back plan.
In money back plan, apart from having a life cover of 10 times of your annual premium, you also get a percentage of your funds in regular intervals. The percentage and intervals vary from company to company.
You can use these funds to address your short term financial goals, like Mr Rahul, gets 20% of the funds in every 5 years. So, he uses this fund for his adventure trips without having any extra financial burden. Mr Singh, uses his funds for his child’s education. These periodic returns help him to meet the growing expenses of his child’s education. While Mrs Kumar, who is found of luxury items, bought a car with the first instalment she received. Depending on your requirement, you can increase or decrease your premium and payouts.
Long term goals
Long term financial goals are the ones where you need a large sum of money, but after a long period of time. Like retirement planning, child’s marriage, child’s higher education, etc. Basically you have plenty of time to let your fund grow. Talking about retirement planning, you can choose any of the two plans, whole life insurance plan, or ULIP PLan, depending on the return you want.
Whole life plan is a permanent plan, where you are covered till the age of 100. There are two maturity benefit, one, on completion of the term and the other at 100 years. Here, fund grows without any market risk, hence, you are almost certain about the amount you are going to receive. You can take basic sum assured in regular pay-outs after maturity helping you with your expenses after retirement.
ULIP, or, unit link insurance plan, is an insurance plus investment plan, where apart from getting a cover of at least 10 times of your premium, funds are also invested in the market. Since funds are invested in market, rate of return is higher, but also there is a risk involved. The good news is, generally you have a control over percentage of your fund to be investment in risk free and in market.
For any long term goals, apart from retirement, like child’s foreign education, or child’s marriage, you should select ULIP plan. The reason is, ULIP will give higher returns, hence your fund will grow at higher rate.
End term goals
Its always a great idea to financially secure your family by providing them with monetary support just in-case something unfortunate happens to you. For that very reason, you should opt for a good term insurance plan. The benefit of term insurance is that it provides higher cover amount with less premium (w.r.t other type of insurance plan) but it expires after the policy period. Meaning, if you survive the entire policy period, you won’t get any maturity fund. But that should not bother you, as, if you have survived the policy term, say 30 years, then your family may not be dependent on your income, as your kids would be financially independent by then.
But, one should be careful while selecting the cover amount for term insurance, as a small cover amount may not be sufficient to support your family’s finances in future and very high cover amount will lead to higher premium, denting your pocket. Well, as a small tip, we would suggest that you should at least have an assured sum of 10 times of your current annual income. Like if your per annum income is say 10 Lakh rs, then you should have a plan with sum assured of 1 Crore.
And as far as premium is concern, you can even lower your premium if you opt for a term insurance at early age, here is a comparison.