You jog and gym to build endurance and stay in shape. You upgrade your skills with new courses and certifications to grow professionally in your career and possibly, for your future start-up. Your travel bug keeps expanding your horizons. In short, like any smart young professional today, you gun for all-round growth. But what about your personal finances? Is your money growing well enough to help you win the financial marathon of life?
Most of your major requirements — a dream home without a large loan, your own enterprise, children’s higher education — require substantial savings. Accumulating ample savings takes time. This means you need to start investing early and a few years can make a big difference.
Why start investing early
If you invest Rs 1,000 every month for 20 years, you will save Rs 3.67 lakh and Rs 5.89 lakh if the investments were to grow annually at 4 per cent and 8 per cent respectively. If you start five years later, you save substantially less with Rs 2.46 lakh and Rs 3.46 lakh at the same annual growth rates.
With many significant needs that may arise at different points of time in future, it is important to have ample savings. For this, you need a comprehensive plan that identifies your major financial needs, the amounts required and regular investments in options that will help you cross the finish line.
However, before that, you need to ensure that an important step is taken. This involves getting adequate life insurance coverage for your dependents. Reason: Early in your life, even if you invest smartly and your investments perform well, in your absence, they will not be sufficient to meet your family’s needs. If a person who would have worked till an age of 58 dies at 38, his family misses out on his 20 years of income. Remember, life insurance money not only helps meet your family’s regular household expenses, but also major future requirements like a child’s higher education. This ensures that your family doesn’t have to dip into your savings or take expensive loans.
While having adequate life insurance is the first step in making a comprehensive financial plan, for many, this is easier said than done. Early on in your career, when you are setting up your household, your expenses always catch up on your income. So, your savings tend to be small, if not meagre. Then, is how do you ensure adequate life insurance coverage? This is where term insurance plan or a term plan comes in.
How a term plan helps
A term plan provides life insurance cover during the term of the life insurance plan. Among life insurance plans, term plans provide the highest life insurance cover at the most affordable premiums. This is because there are no charges associated with investment portions of many life insurance plans. Term plans bought online have even lower premiums since cost savings of life insurance companies are passed on. That’s not all. You can choose the mode of premium payment, which ranges from monthly to annual premiums.
Advantage of the term plan
Buying term plans early in life has many advantages apart from providing adequate and affordable life insurance cover. You pay low premiums when you start young since people are at their peak health condition then. This is why you don’t need elaborate medical tests. Plus, you continue to pay the low premium through the term of the insurance plan.
A low life insurance premium means that you have more disposable savings for other investments, especially equity-oriented ones that typically provide high growth in the long term. The regular investment can increase as income and savings increase over time.
You can also widen your coverage for other risks such as accidents by taking insurance for them in the form of riders that can be attached to term plan, with a nominal hike in premium. With adequate protection, you don’t need to keep excess liquidity for emergencies in the form of cash or low-paying bank deposits, and invest even more in growth investments.
Clearly, term plans are like protective gear for batsmen in cricket. Once you put them on, you can bat with confidence. Likewise, in case of a comprehensive financial plan, term plans form the base on which you can build the monument of your wealth for future needs.
Karthik Raman
Chief Marketing Officer and Head, Products & Strategy,
IDBI Federal Life Insurance