Life insurance: A dependable investment choice

Rushabh Gandhi

India continues to show great promise. The consistent GDP growth of over 7% comes with obvious positives, including improved spending capacity and more flexibility to save and invest. Spending decisions are usually impulsive and taken easily.

Savings and investment decisions on the other hand require a lot more thought and, eventually, a bit of nudging. To help the ones that are currently “fence-sitters”, I have summarised the rationale for you to invest in a life insurance product in the following simple ways:

Asset allocation critical

Fine-tuning your portfolio’s asset mix to best mirror your needs and priorities is a dynamic process. It is this asset mix which plays a decisive role in your portfolio’s overall risk and return. Whichever way you look at it, having a long-term savings product as part of your portfolio is an absolute must. Given its investment pattern, product structure and tax advantage, life insurance is arguably the best long-term (10 years and beyond) investment available in India. It is for this reason that most financial experts recommend that 10-20% of your investments should be in long-term life insurance policies.

Income-replacement tool

The needs require to be fulfilled — with or without you. When one dies, needs such as children’s education, their marriage, spouse’s health upkeep, etc. remain alive. While nothing in the world can make up for the emotional loss of losing someone close, a life insurance product can make the financial transition smoother.

In other words, a life insurance plan works beautifully as an income-replacement tool and consequently, will ensure the fulfillment of needs. If you earn Rs 10 lakh per annum and the current interest rate is 7%, you should, as a thumb rule, have a life insurance of Rs 1.43 crore.

Planning a legacy

One of the most understated benefits of a life insurance policy is legacy planning. It is one instrument that helps the transition of wealth from one generation to another seamlessly and without ambiguity. The nominees of a life insurance policy will get the policy proceeds in a pre-determined ratio and the legacy gets transferred effectively and efficiently.

While a lot of people will cite a lot of reasons why investment in a life insurance policy is important, the above three reasons are overriding and all-encompassing. In summary, a life insurance policy may be loved by some, may be hated by some, but it definitely cannot be ignored by anyone.

The writer is Director — Sales & Marketing, IndiaFirst Life. The views expressed in this article are his own