Importance of insurance for women: India, over the past two decades since the first wave of economic liberalisation, has seen a great deal of not just economic change but linked societal change as well. This societal change has also remodeled traditional societal models regarding the role of women.
More and more women, particularly in the cities, are becoming financially independent and becoming equal if not dominant contributors to the household budget. The truth is that a lot of women are taking their own financial decisions when it comes to savings and investments.
Despite this, many women do not consider insurance products and plans with any degree of seriousness. Insurance plans are great instruments for protection and long-term savings and can play a very significant role in achieving long-term goals.
Today there are many insurance plans that can help women secure themselves and their loved ones and plan for the future as well. The challenge is where does one start?
A great way to start is to make an assessment of your income, assets (savings and investments) and liabilities (loans). One must factor in the number of dependents into any financial calculation.
So, how does one go about assessing what sort of insurance plans to consider? Let us start from the beginning.
If you have any dependents — aged parents and siblings — then it is imperative to have a term plan in your insurance basket. A term plan is a plan that gives your nominees a certain corpus of money in case of death occurring during the policy period. This ensures that your surviving dependents can live the same lifestyle even in the unfortunate circumstance of your death.
A term plan normally gives no money back at the end of the policy period if you survive but it buys a large cover for a relatively small premium payment. There are a few plans in the market that give the sum of all premiums paid back on completion of the policy term. These are relatively more expensive.
How much is enough?
This is where most of us miscalculate badly and under-insure ourselves. A good thumb-rule is to take your gross annual income and multiply it 6-8 times to arrive at a base insurance amount. Add any secured loans (housing loan, auto loan, gold loan etc) and deduct the current life insurance you already have one.
Assume a gross annual income of Rs 6,00,000 with an outstanding housing loan of Rs 15,00,000. The total of all existing insurance policies is Rs 3,00,000. The minimum insurance cover required is Rs 48, 00,000. This is a far cry from the Rs 3,00,000 of insurance that is currently held.
Women with no financial dependents should not consider term insurance. To buy a term plan one should get in touch with a financial counselor. There are also a number of companies selling term plans online.
Once term insurance is out of the way the other critical thing that needs to be covered is medical expense. Everyone must have a medical insurance. Given the ever increasing costs of treatment and the incidence of lifestyle and other new-age diseases, not having a medical insurance can lead to financial debilitation. There are scores of medical plans available in the market.
Even if one is working and has a health insurance provided by an employer, it is better to have independent personal health insurance as well. Employer insurance ends immediately on end of employment and this could leave one uncovered. Also as one gets older it becomes more expensive to get a health insurance cover. Take a health plan early and lock in lower rates.
Another aspect where insurance comes in very handy is in retirement planning. The best time to plan for retirement is the day you start working. However, very few of us think like that. It is important to start saving early, the earlier the better, since this means that one can build a larger corpus leading to a more comfortable retirement. Retirement plans have two phases. The first phase is when you accumulate and grow your money. The regular premium paid by you is invested in market-linked instruments such as stocks and shares, bonds, deposits and many other instruments. This money grows until the pension plan matures or vests. At this point you have the option of withdrawing 33 per cent of your corpus. The balance 33 per cent has to be invested in what is called an annuity plan. The annuity plan is what gives you a periodic payout in the form of a regular pension.
How does one go about calculating how much money to invest in a pension plan? The best way is to sit with a financial counselor who will be able to assess your future needs, factor in inflation and arrive at the money you will require to get the pension you want. To do this you must tell the counselor the age at which you wish to retire which should coincide with the vesting date of the plan.
Another area of concern to women is the money needed for their children. This money can be for marriage, further education or just to provide a loved one with a head-start in life. Whatever the end use be, this is a very critical need to save. A number of insurance companies have designed plans specifically for these needs. These are called child plans.
A child plan, like any other insurance plan, involves the payment of a regular premium. This premium is invested and the regular premiums go towards building a corpus that is paid out as a lump-sum at the time when it is most critical — before your child goes for higher education or before their marriage.
The best time to invest in a child plan is at the time when the child is born. This helps to maximize the corpus at the time when it is most needed. Child plans come with an option whereby if something were to happen to you the insurance company will pay all future premiums and ensure that your child gets the corpus as planned. This is called a waiver of premium option and one should not buy a child plan without this option.
As demonstrated insurance can help you plan your life better in a number of different ways. Insurance makes you both secure and prepared.
—Author is Chief Marketing Officer & Head — Talent, AEGON Religare Life Insurance