If millennials want to invest for a longer duration and are willing to take some amount of risks, they should look at investing in unit-linked insurance plans (ULIPs).
By Rakesh Goyal
Millennials are many times accused of being a spendthrift as they tend to focus on buying the latest gadgets, accessories and bespoke clothes. For many people, investments are only to set aside some money to save tax under Section 80C of the Income Tax Act. But the younger tech-savvy generation has started to look at investing in life insurance products, but more needs to be done to attract more people to attract towards life insurance, which can help them have financial freedom.
Investing in life insurance is a must for not only millennials but for every individual. There are several products available in the Indian life insurance industry that caters to the need of every individual. If millennials want to invest for a longer duration and are willing to take some amount of risks, they should look at investing in unit-linked insurance plans (ULIPs), if they are risk-averse, the option of investments is endowment plan is also available. But before all these products, millennials should have a term plan.
Suppose, a 25-year-old who has just started his career, will opt for either term plan or endowment plans with very low coverage, as there is no liabilities and many times one can’t afford high premiums at an early stage of their career. But few years down the line, he gets married and later has a child, so his life insurance needs also changes and can look at the money-back plans.
Typically, 25 years should have a term cover which will be two or three times their annual salary or have endowment plans which will be lower life cover. Typically, people buy term plans of 10 times of their annual income. But I would suggest that a term plan should be based on their age factor. For example, if a 25-year-old is earning Rs 10 lakh per annum, in basic term should have a term plan of Rs 1 crore (10 times of annual income). But I advise that they should have term plan Rs 3.5 crore as they still have to work for another 35 years.
So, it’s better to have term plan based on his age rather than going just by having a term plan of 10 times of their annual income. Nowadays, there are plans which gate coverage for 100 years also, this can be used for estate planning.
It’s important for millennials to understand the importance of life insurance. But at the same time, I would say that more needs to be done from the insurance industry to attract them towards life insurance. In the last few years, with the adoption of technology, many people buy insurance online. However, we still have to make them understand about the values of insurance and how it can benefit them in the long run, and not just as a tax-saving tool. More needs to be done on the technology front as it becomes easy for millennials to compare product features, prices, reviews and buy the policy immediately.
Investors should first decide how much cover they want and how much risks they are willing to take. They should visit the insurance web aggregators and compare the products of similar categories. They should look at claims ratio, waiting period, inclusions and exclusions before choosing the policy. They can look at investing in endowment plans, ULIPs or money back plans.
Endowment plan is a simple life insurance policy which covers the life of insured and helps them to save regularly. If the insured dies when the policy is in force, he will get the sum assured amount. If he survives, he gets the maturity amount. While in ULIPs he gets exposure of equity markets and is for a longer duration. It gives them returns as well as life cover.
( The author is Director, Probus Insurance Brokers)