How insurance policies can make your financial portfolio robust

Life as we have known it no longer exists. Every day, we now prepare for what has come to be known as a new normal. An unknown virus, COVID-19, came, saw and destroyed, everything that we took for granted. In its wake, it has left us scrambling back to our drawing boards, to paint a new masterpiece for our lives, families, business and economies.

Across the globe, countries are dealing with the economic crisis, unprecedented industry challenges, struggle for basic amenities and lockdown measures. With heightened health concerns, triggering risk aversion, there is a silver lining for insurance companies.

People are increasingly recognising the importance of insurance in such unforeseen circumstances and India is no exception.

While insurance advisory was slowly inching towards digital platforms, a vast majority of Indians still preferred face-to-face interactions, prior to investing in insurance. In lieu of the extended lockdown, this vast majority is now forced to adapt to digitisation to address protection needs, effecting a change in the buying behaviour.

With health concerns amplified amid this pandemic, this is an opportune time to relook and redesign financial portfolios, looking through the lens of three critical elements – protection, savings and wealth creation.

Protection forms the foundation of a strong, long-term financial portfolio, as it mitigates potential risks and challenges. There is enough anecdotal reference that showcases the damage done, given unforeseen health expenses or loss of income due to the death of the family’s breadwinner.

Apart from making a massive dent in a family’s savings, lack of protection leaves you and your family grappling with undue stress of day-to-day living while coping with stress or tragedy.

Protection products help your loved ones to retain their lifestyle and long-term financial goals, without disruption. With innovative solutions now available, offering cover for both you and your spouse at affordable costs, you can easily secure the future aspirations of your loved ones. Similarly, some insurers offer critical illness plans that provide a term cover, should you be diagnosed with major or terminal illnesses like cancer.

It is advisable that you buy protection products as soon as you start your professional career. It is a fallacy that younger generations do not need life insurance, when in fact buying insurance early, results in considerable cost-saving in the long-term.

It is advisable to earmark at least 10 percent of your financial portfolio towards savings products. Life insurance traditionally has served as the leading product category for savings across most Indian demographics. In all likelihood, the first time you learned about life insurance, might have been through a savings plan bought for you by your parents.

These plans are an ideal way for wealth accumulation, irrespective of your risk appetite.

Amid heightened market volatility and a reducing rate cycle in the country currently, this product category has now become a far more attractive instrument for long-term savings. This product category can give a steady return of 5-6 percent annually, over the longer term, as opposed to traditionally preferred fixed deposits.

Goal-based financial planning is critical, and it differs depending on your life stage. In recent years, Unit Linked Insurance Plans (ULIPs) have emerged as the leading option for wealth creation, with insurers facilitating ease of buying through digital platforms. Apart from the added perk of a life cover, ULIPs have a mandatory 5-year lock-in period, which insulates your money from any intermittent shocks and leverages the magic of compounding, resulting in higher returns.

New-age ULIPs offer flexibility in switching funds, tax benefits owing to the exemption of LTCG tax, and more, with premiums as low as Rs 1,000 every month. Several ULIPs also offer systematic withdrawal, acting as income plans, to meet your life-cycle requirements.

In fact, ULIPs can also be effectively used for your child’s future or legacy or retirement planning.

As we continue our fight against COVID-19, protection will see a marked increase in terms of customer consideration. People will be more cognisant of buying insurance, complemented by increased awareness driven by the industry. With insurance penetration in India still in single digits, it will be interesting to see how increased digital penetration creates an impact.