For most of us, the 20s are characterized by a series of ‘firsts’: Real jobs, paying rent, funding that Eurotrip, getting married. Our careers become stable, leading to bigger paychecks, more responsibilities, and added spending power—you can finally afford the concert tickets you want. Unfortunately, it also means watching generous pay hikes shrink into miserable figures as it hits your bank account after tax deductions. Taxes are an unavoidable part of adulthood, and so are the increased expenses that will greet you in the near future, whether it includes marriage and kids, dependant parents, or just you and the good life. Taking life insurance early on helps you both ways: with tax benefits while you earn and returns that ensure you can fulfill future duties and needs.
And yet, thanks to several misconceptions surrounding life insurance as well as general laziness when it comes to financial planning, most of us put it off as long as possible. From “it’s too early to think of insurance” to “I can’t afford premiums with my salary”, there’s always an excuse handy when it comes to making long-term financial decisions. Here are the three of the most common ones and why it’s time to reconsider them.
“I am too young to consider life insurance.”
Angira, a Mumbai-based brand manager in her 20s, grudgingly bought a life insurance policy four years back purely on her father’s insistence. “I was 23 and it was the last thing on my mind,” she says. However, a promotion and change of role more than doubled her salary, pushing her into the highest tax bracket. Last year, she bought an additional policy on her own. “Together, they save a lot on taxes, but my premiums are super low, so the monthly crunch isn’t much. And it feels good to know that I’m putting something away, just in case…”
If you’re old enough to pay taxes, you’re old enough to take out an insurance policy. The earlier you start, in fact, the lower your premiums are going to be, allowing you to save a considerable amount in taxes over your working life. Besides, there’s no easier way to assure financial protection to your closest ones in case of a mishap. With extremely affordable premiums and guaranteed risk cover, term policies are by far the primary choice of life insurance in India. You can claim deductions for up to Rs 1, 50,000 annually, as per Sec 80C/80CCC and of the Income Tax Act, with death benefits being tax exempt under Section 10(10D). So, if you started working at 25 and plan to stay employed at least till 55, that’s 30 years worth of taxes you can potentially save.
“I am single and plan to keep it that way.”
Life insurance is essential even if you foresee no dependants in your future. In fact, it gives you all the more reason to plan your finances such that your own future goals are secure, be it early retirement by the sea or kick starting a new career at 50. Bangalore-based technology consultant, DebanujChakraborti has been annually putting away part of his income in a 20-year insuranceplan that guarantees returns when he turns 45. “Ideally, I want to quit working fulltime by 45-46, travel, maybe pursue something of my own,” explains Chakraborti. “Apart from tax-savings, my insurance policies are primarily meant to help me realize that.”
Ideal for those who are bad savers but would like to put away money for mid- to long-term goals, like buying a house or retiring early, endowment plans pay an assured sum along with profits on maturity of the term. If you do end up starting a family, these payoffs can be timed to mature alongside expected milestones like your child’s university education. Like term policies, all endowment plans provide financial protection for nominees and are eligible for tax-savings.
“I would rather invest that money.”
Well, who’s to say that you can’t insure and invest both? With an ideal combination of risk cover and investment options, unit linked insurance plans (ULIPs) are popular among those who want to test out their investing mojo, while also assuring financial protection for their family. These let you divide your money between insurance and investment, with a variety of fund options for everyone, from the risk-averse to the adventurous. While ULIPs guarantee a maturity amount like endowment plans, thanks to the investment factor, these returns are market-linked and, therefore, often higher. With a systematic plan in place, you can actually watch your wealth grow while still guaranteeing financial protection in case anything happens to you.
Based on your objectives and finances over time, insurance policies can be adapted to ensure that your salary works equally hard alongside you. In the long run, a strong insurance portfolio is not only an inevitable part of financial planning, but also the way to a largely comfortable and happy life.
Here’s an easy online tool from HDFC Life that lets you choose the perfect insurance product based on your unique personal requirements.