Why for achieving financial freedom investors need to have adequate insurance coverage?

It is a good idea to assess and evaluate one’s own financial security. Financial independence can mean different things to different people - enough money to send your kids to school, retire comfortably or protect your family’s future. It’s pertinent to note that the state of financial freedom cannot be achieved without the protection that crucial insurance products offer. Let’s take this opportunity to look at how different insurance offering can assist you in achieving financial freedom as put forth by Tarun Mathur, Co-founder at Policybazaar.com

A. Individual health insurance policy to supplement corporate policy

The skyrocketing medical inflation at 14% along with diverse healthcare needs can put financial burden on individuals.Some health insurance policies can fall short due to restrictions like low sum insured or exclusion of specific advanced diseases, this might lead to unexpected expenses, hence increasing the financial burden. Additionally, corporate policies offer a cap on room rents, which means one has to bear expenses from their own pocket over and above that. The network of hospitals where cashless features are available can also be limited, where you might have to pay large payments upfront and navigate through the reimbursement process later. These policies don’t provide adequate coverage for aging parents who need more medical care. This is why it’s always advised to supplement your corporate coverage with a comprehensive retail health policy. It provides a variety of benefits -  you can choose a high or unlimited sum insured and customise your  policy with add-ons like OPD, maternity, PED reduction and more.

B. Term life insurance to build a safety net for your family in your absence

Term insurance is a vital protection tool that everyone who has dependents must consider. Pure term protection helps ensure a safe and worry-free future for your dependents in your absence. One can choose from different types of term plans as per their requirements. Pure term plans offer coverage from 1 cr to 5 cr at affordable rates - making them an attractive offering.Additionally, Term plans with Return Of Premium (TROP)  are also available which return the premium paid by the customer upon maturity, however, they cost 2x than regular plans. Return of premium at no cost plans with a one-time exit option also returns the paid premium to the policyholder and costs the same as regular plans. Independent homemaker term plans are also available which independently cover the life of a homemaker, irrespective of whether her spouse has a policy or not.

C. Investment-cum-insurance policies for wealth creation

Investment plans act as all-in-one plans meeting various goals like planning out your child's education, or wealth creation for hassle-free retirement years. Here’s a list of plans, you can invest in to secure your future-

1. Ride on market highs with unit-linked insurance plans

The investor’s appetite to take risk varies from being risk-averse to risk-loving. Unit-linked insurance plans serve best for investors who are open to taking risks. Under favorable market conditions, these plans have historically been providing best-in-class returns that run as high as 12-15% on investments. The investor is free to diversify his/her portfolio, putting their funds under debt, equity, or hybrid as per the preferences under ULIPS. These plans also offer tax benefits up to Rs 2.5 Lakhs of annual premium that result in significant savings.

2. Reap guaranteed returns

New-age guaranteed return plans offer returns ranging from 7-7.5% (the highest rate in traditional plans) that can beat inflation.These returns are tax-free up to Rs. 5 lakh annual premium. For instance, you invest Rs 20,000 per month for 5 years in these plans, by the end of 5 years, you would have invested Rs 12 lakhs. Now, in the 10th year, you can expect a corpus of Rs 20.5 lakhs, which means you earn a profit of over 8 lakhs on your investment. You can also invest Rs 40,000 per month and will be eligible for a profit of around Rs 17 lakhs, and still be under the tax-free limit.

3. Plan your retirement with annuity                   

If you aspire to diversify your portfolio and live worry-free retirement years, consider investing in  annuity plans. They are a good option because they offer a well-rounded approach to retirement planning. They come with the option of immediate annuity or deferred annuity, depending on whether you want your income to start right away or later. Also, they come in lump-sum or regular pay-out variants, which makes them incredibly flexible, while offering a guaranteed rate of return.