1. Students
Cover education loan and disability
These days, most students opt for education loans to fund higher studies. The loan is repaid by the student after he completes the course and finds a job. However, in case the student dies or becomes disabled during this period, the parents should not be burdened with the repayment of loan. This is the reason students need a term assurance policy with an accidental disability rider. The sum assured should be a little more than the total amount to be repaid, including the principal and interest on the loan.
Even if parents are financing the education of their child, it is essential for the student to have disability insurance. So, if he is rendered disabled and completely dependent, it will help the parents cover the cost of looking after him for life. Most general insurance companies offer policies that cover accidental disability adequately. Also, the cost of such policies is not very high.
2. Single earners
Cover disability and dependent parents
At the start of a career, it is important to have a disability cover, ideally a plan that comes with a disability income benefit. However, such a plan isn't easy to come by, so the next best option is to buy an accidental disability cover. It is a reasonable fit because at this age, disability is more likely to be caused by an accident rather than illness. These plans cover the risk of loss of livelihood due to disability.
While death at such a young age would be devastating for parents, it would not impact them financially as they are likely to be independent at this stage. In case the parents are supported by the child, he must opt for a term plan. Many young professionals contemplate investing in an endowment plan, but it is better to bet on bank deposits for short-term goals, such as buying a motorbike or a car. Also, most new employees do not have a high monthly surplus, so committing a sum to an endowment plan may be impractical.
3. Newly weds
Insure the needs of the spouse
One of the most crucial changes that marriage brings about is the financial responsibility of a spouse. The husband or wife may have had to move town to get married and could be partially dependent on the partner. In case the breadwinner dies, the spouse would be rendered financially insecure, especially if there is no alternate source of income.
Therefore, it is prudent to insure the life of the breadwinner so that the needs of the spouse are taken care of. Disability cover is also essential for young couples and an accidental disability policy can serve this purpose.
Endowment plans can also be useful at this life stage, serving as saving vehicles for goals such as down payment for a house. However, the newly weds would have to wait for a fairly long time, close to 10 years, to earn reasonable returns from these insurance policies as they have a low annual rate of return.
4. Young parents
Take care of big-ticket expenses
Parents with young children need higher covers as their financial responsibilities are greater than before. For instance, education is a big strain on their budget. The best life insurance is a term plan. An accidental disability rider is also handy as it covers the most common cause of disability. However, the family is still exposed to medical risks and needs health insurance.
Fortunately, the cost of these covers is low, so families with limited resources can also afford them. For a young breadwinner, the sum assured for a life insurance policy should be between 10 and 20 times his annual income. Those with older children must opt for a cover between 3.5 and 7 times the total income. It is also necessary that the sum assured covers all debts, such as housing loans and credit card debts. At this age, incomes usually grow faster than inflation, so it should be easy to afford the premium of a a high cover.
5. Middle-aged parents
Kids' education should be a priority
The importance of life insurance does not increase as children grow older and the existing term plans can be adequate. However, parents must re-evaluate their covers regularly as their income would have grown significantly and the family would be used to a better lifestyle that could need protection.
Financing children's education may still be a priority, which accounts for the popularity of education plans. Paying the premiums of these plans should not be a problem. A money-back plan is suitable for parents who start saving for their children's education about 10 years before the money is required. Such plans provide a lump-sum income at regular intervals. However, the payments may not be timed to meet the family's needs. If there is enough surplus, then parents should start planning for retirement. As the income from pension plans is taxed, they should consider investing in endowment plans.
6. Retirees
Provide for regular monthly income
Life insurance is rarely a priority for couples close to retirement, but existing term plans should be retained to support the spouse. Providing for retirement should be at the top of the to-do list and surplus funds should be funnelled towards building a corpus. Endowment plans, which allow investors to withdraw money in instalments, are a good bet as they are tax-friendly. However, those who want a plan that guarantees income for life may have to pay more tax.
After retirement, life insurance policies can be allowed to lapse as there are likely to be enough savings to support the couple. However, one should be wary of tying up too much money in a single life annuity as it will lapse on the death of the policyholder, leaving the spouse without any source of income. Therefore, it is best to play it safe by spreading investments across asset classes and insurance companies.
