Life Insurance Doubling up as an Investment Tool
Life insurance is one of the first financial tools that most financial experts recommend investing in. Life insurance plans can bring financial stability by offering guaranteed income in the case of an unfortunate incident, which is why getting it at a young age is extremely important. However, while you may have heard of assured payouts, not many people know that life insurance can also be used as an investment instrument. There are several types of life insurance plans, each with its benefits and features, and some of these can be instrumental in helping you prepare for your future with systematic investments.
Find out more about how you can use life insurance policies for your investment needs.
Benefits of life insurance policy for wealth creation
Life insurance policy plans are usually considered to be only a financial back up. This is usually true in the case of Term insurance plans. Yet, life insurance plans can also help with investments as well as with savings. In effect, Life insurance plans can double up as financial tools that can help in both capital appreciation as well as capital preservation for any of your future goals. Life insurance plans offer multiple benefits, such as guaranteed life protection, tax savings, assured income, market and non-market-linked returns, etc., that help you prepare for various goals. You can use life insurance for goal-based investments, such as for a child’s education expenses, retirement planning, home purchase, emergency funds, and more. The biggest advantage of using life insurance for investment or savings purposes is that you can pick options based on your risk appetite and investment budget. There are several options to choose from, and you can easily find the one ideal for your requirements.
Types of life insurance policies depending on life goals
Here are some insurance plans you can consider:
- Term Plans: These are the most basic and affordable insurance plans. Term plans offer a life cover to the nominee of the insured in case of an unfortunate event. These are primarily considered as a financial back up for the family of the insured individual. Term plans usually have longer tenures, lower premiums and a high sum assured. Term plans also usually come with added riders that enhance protection for the insured.
- Unit Linked Insurance Plan (ULIP): A ULIP is a life insurance plan that lets you protect your loved ones and plan for future financial needs simultaneously. The premium that you pay towards a ULIP is divided into two components. One goes towards your life cover that is given to the nominee in your absence, and the other is invested in the funds of your choice. You can choose between equity, debt, and hybrid funds as per your risk appetite, investment horizon, and objective. At maturity, the fund’s value will be given to you. A ULIP investment plan is the ideal combination of life protection and market-linked returns to help you create wealth while safeguarding your family members in their hour of need.
- Traditional Savings plan: These plans offer assured savings along with life protection. Money Back, Endowment and Child Plans can be considered in this bucket of plans. As the name suggests, these plans offer protection along with return of money or a lumpsum on maturity. They are low-risk investments that are not market-linked. However, you can earn loyalty and maturity additions that enhance your policy’s value over time. These additional benefits help you counter inflation and provide sufficient funds at maturity to fulfil the life goals that you may have planned for. Be it a child’s education, a lump sum for retirement or building low risk corpus of savings while providing financial security to your loved ones.
- Pension plans: One of the most popularly searched terms that people look for, when they are either close to retirement or who want to retire is, ‘Retirement investment plan’. If this is a query related to an insurance product then it is referring to pension plans and/or Annuity plans. With pension plans, the insured individual is required to contribute a specific amount regularly till his/her retirement. Out of the funds accumulated over time, upto 33% of the corpus can be withdrawn, and the remaining 67% must be invested in an annuity scheme that suits the individual.
Annuity products provide individuals with a lifelong income. Depending on the individual needs, the insured person can choose between immediate or deferred annuity. An immediate annuity is where the insured begins receiving income payments immediately after investing in the scheme. On the other hand, with a deferred annuity, the insured starts receiving income from the scheme after a specified interval post investment in the scheme. This allows for the money to grow in the interval.
Thus, pension and annuity plans can help protect individuals to be financially independent when they may no longer have a regular salary to depend on in retirement.
When it comes to retirement, it is usually recommended that individuals opt for a plan that suits their life goals (ULIP, Traditional Savings or Pension plans) before retirement. These can help with investment and savings, thus creating a pool for the insured to take care of a variety of life goals like Child education, marriage, house, education of a child and so on.
On maturity of such plans, the proceeds derived from these can then be invested in a plan which can help with a regular stream of income for the insured or their nominee.
Picking a life insurance plan can be the ideal way to simplify your finances and achieve two goals with a single instrument. Life insurance policies can offer you the best of both worlds - stable returns and financial growth to keep up with the changing market forces.
Frequently Asked Questions (FAQs)
- Which life insurance plans double up as investment tools?
Several types of life insurance plans like ULIPs, retirement plans, child plans, traditional savings plans, etc., can be used for investment purposes. All of these also offer a sum assured in the unfortunate event of the policy holder’s demise.
- What are some financial benefits of life insurance plans?
Life insurance policy plans provide tax benefits, guaranteed payout to the nominee, and as well as consistent returns for future financial goals.
- Are life insurance plans risk-free?
The risk involved in the different types of life insurance plans can differ based on what you choose. Some plans may offer high risk and returns, while others can be ideal for risk-averse investors. You can choose a plan based on your preference and needs.
To get a detailed understanding of life insurance product offerings that will help you with your financial planning, we request you to fill out your details here and one of our experienced advisors will call you back.
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