Getting the right life insurance policy is crucial for any Millennial who is looking to build a strong financial future for himself and his prospective families. However, being preoccupied with paying off student loans, kick-starting their careers and maintaining their social profiles, Millennials are not able to dedicate much time to life insurance. Understanding the nuances of financial planning and the importance of life insurance in that, is crucial for the younger generation. Known to become one of the wealthiest generations and with improving standards of living, the Millennials could do well with an adequate level of life insurance in their financial portfolio.
Why is it important to buy life insurance when you are young?
Insurance premiums are positively correlated with increasing age. The best time to invest in a comprehensive life insurance policy would be when you are young and healthy. Same applies to health insurance too. In pure economic terms, one would end up paying higher premiums for the same benefit at later ages. Life insurance is an essential component of the financial portfolio right from the beginning and often skipped as part of the financial planning. The Millennials would do well to learn from the past and not procrastinate this important decision. The need for life insurance is not solely dependent on external factors such as family or mortgages. Getting life insurance should also depend on personal dynamics such as health, financial status, protection and security.
What kind of life insurance should you buy?
Given the plethora of options, one is bound to get confused. Life insurance provides financial protection for you and your family in the future. There are multiple insurance companies that provide various types of policies. Such policies are designed to provide a need-based insurance for the Millennials.
Choose the right plan according to your needs:
Term Plan – This is a policy that covers you financially against an untimely death. With term plans you can get the highest sum assured at a lower cost. This is recommended as the FIRST life insurance plan and the other plans could be next, since it provides an adequate level (nearly 10 to 20 times of annual income) of insurance protection. It is for a specified period of time. Having a comprehensive plan, including critical illness covers, will allow you to live a peaceful life, without having to worry about the financial protection of your dear ones. This plan pays the benefits under the plan only upon the occurrence of the event and are pure protection plans. This plan is not for the purpose of savings or accumulation. One highly conducive measure taken up by insurance companies is integrating the process of acquiring an insurance policy online. Being Netizens of the online world, the Millennial audience will find this process quick, easy and hassle-free.
Unit Linked Insurance Plans (ULIPs) – While there is a certain audience that indulges investing in mutual funds, ULIPS are another investment avenue. Why would this be a feasible alternative for Millennials? As opposed to mutual funds and traditional life insurance products, ULIPs are an Investment + Insurance policy, where the investment risk is on the individual. One can invest in various funds based upon their risk appetite in the prospect of gaining commensurate returns while enjoying the benefits of having an insurance policy as well, with added tax benefits! If you are someone who has a long-term horizon to investing and at the same time would like to secure the future savings (through waiver of premium riders), a ULIP policy is for you.
Endowment or Guaranteed Savings Plan – A policy that is ideal for Millennials who are not keen on taking the investment risk. These plans offer a guaranteed return with a fixed rate or a return based upon reasonable expectation with principal guarantee, thus the investment risk is with the insurer. It offers an opportunity for long-term wealth creation, insurance coverage and regular goal-based savings. Based upon the savings needs meant to be served by these plans, these plans have benefits which would be in the form of regular money-back payouts at fixed intervals or lump-sum benefits on maturity.
Within the endowment and guaranteed savings plan types as above, there are Child’s plans which are designed to meet the specific need of savings for child’s education or wedding. If you are already married, then you should consider getting a child plan as it will help in their future. If you are a child who is insured under a child plan, then you will be able to take control of the policy once you become 18 years old. If the policy holder i.e. the parent passes away during the course of the plan and is covered under it, the remaining premium payments are waived off by the company, the sum assured as well as the top up sum assured is paid to the nominee, in this case you. With the amount you receive either as death benefit or maturity benefit, you can pay off student loans and tuition fees.
As a Millennial, you are destined to be one of the wealthiest generations. However, it will be difficult, if you do not plan your financial future properly. Realizing the importance of planned investments is crucial for budding youngsters. Managing your money in your 20’s usually involves trial and error. Learn the basics and use this knowledge to protect your financial future. Then along with being one of the wealthiest, you will also be one of the proactive and protected generations!
(By Rajeev Chugh, Chief Financial Officer, Aegon Life Insurance)