Why do investors need adequate insurance coverage to achieve financial freedom?

It is a good idea to assess and evaluate your own financial security. Financial independence can mean different things to different people – enough money to send your children to school, retire comfortably, or protect your family’s future. It is pertinent to note that financial freedom cannot be achieved without the protection offered by crucial insurance products. Let us take this opportunity to see how different insurance offerings can help you achieve financial freedom, as outlined by Tarun Mathur, Co-Founder, Policybazaar.com.

A. Individual health insurance policy as a complement to the corporate policy

Medical inflation soaring to 14%, coupled with various healthcare needs, can put a financial burden on individuals. Some health insurance policies may prove insufficient due to restrictions like low sum insured or exclusion of specific advanced diseases, which may lead to unexpected expenses, adding to the financial burden. Also, corporate policies offer a cap on room rents, which means one has to bear the expenses from his own pocket on top of that. The network of hospitals where cashless facilities are available may also be limited, where you may have to make large upfront payments and navigate the reimbursement process later. These policies do not provide adequate coverage for elderly parents who need more medical care. That is why it is always recommended to supplement your corporate cover with a comprehensive retail health policy. It provides a variety of benefits – you can choose a high or unlimited sum insured and customize your policy with add-ons like OPD, maternity, PED reduction, and more.

B. Term life insurance to create a safety net for your family in your absence

Term life insurance is a vital protection tool that all those who have dependents must consider. Pure term protection helps ensure a secure and worry-free future for your dependents in your absence. One can choose from different types of term plans based on the requirements. Pure term plans offer 1 cr to 5 cr coverage at affordable rates, making them an attractive offering. Additionally, Return of Premium Term Plans (TROP) are also available, which return the premium paid by the customer on maturity, however, they cost twice as much as regular plans. No-cost Return of Premium Plans with a one-time exit option also return the premium paid to the policyholder and cost the same as regular plans. Independent Homemaker Term Plans are also available which independently cover the life of a homemaker, regardless of whether her spouse has a policy or not.

C. Investment and insurance policies for wealth creation

Investment plans work as all-in-one plans that serve multiple goals, such as planning for your child’s education or building wealth for hassle-free retirement years. Here is a list of plans you can invest in to secure your future.

1. Take advantage of the market maximums with unit-linked insurance plans

The risk appetite of investors ranges from risk averse to risk loving. Unit linked insurance plans are best suited for investors who are open to taking risks. Under favourable market conditions, these plans have historically provided best in class returns, which are as high as 12-15% on investments. The investor has the freedom to diversify his portfolio, placing his funds in debt, equity or hybrid as per the preference of ULIPS. These plans also offer tax benefits of up to Rs 2.5 lakhs of annual premium, which translates into significant savings.

2. Get guaranteed returns

The new-age guaranteed return plans offer returns ranging from 7-7.5% (the highest rate in traditional plans) that can beat inflation. These returns are tax-free up to an annual premium of Rs. 5 lakh. For example, you invest Rs 20,000 per month for 5 years in these plans, at the end of 5 years, you will have invested Rs 12 lakhs. Now, in the 10th year, you can expect a corpus of Rs 20.5 lakhs, which means you will get a profit of more than 8 lakhs on your investment. You can also invest Rs 40,000 per month and you will be eligible for a profit of around Rs 17 lakhs, and you will still be under the tax-free limit.

3. Plan for retirement with an annuity

If you aspire to diversify your portfolio and live a worry-free retirement, consider investing in annuity plans. They are a good option because they offer a comprehensive approach to retirement planning. They come with the option of immediate annuity or deferred annuity, depending on whether you want your income to start right away or later. Plus, they come in lump sum or regular payout variants, making them incredibly flexible, while also offering a guaranteed rate of return.