It’s usually misunderstood that life insurance is only meant for protection, but be warned, it is also cost-effective for wealth creation. Life Insurance products play the following role in wealth creation:
Protection on the savings/investment: Life insurance products cover risks in the event of death, critical illness or accident in the savings products. When a person decides to create wealth through a life insurance plan, he/she buys a cover on the savings that has the effect of paying out the amount he/she is not able to save due to the happening of the insured event (death, critical illness or accident).
Regular savings: Life insurance premium have to be paid regularly and on time. Once a person commits to wealth creation through a life insurance plan, he/she commits to regular payments that has the effect of paying oneself first and helps in wealth creation.
Availability of emergency fund: Most life insurance plans in the wealth creation category offer policy loans or allow withdrawals after the initial years. The loans are available at reasonable rate of interest and procedure for availing the loan is simple. This has the effect of making available funds in the event of an emergency.
Protection of assets: Life insurance savings contracts offer riders such as term rider, critical illness cover, accident benefit rider, which provide additional protection over and above the inbuilt protection of the savings. The money paid out on the rider in the event of an eventuality can help protect the asset created by the plan and help in the process of wealth creation.
The following types of wealth creation plans are issued by insurance companies.
Conventional ‘with profit’ plans: These plans help the client to build savings under the conventional ‘with profit’ platform. The policy is issued with a sum assured and reversionary bonuses are attached to the policy on declaration (post actuarial valuation). The policies have a provision for payment of terminal bonus at maturity or death in case the same is declared by the company. The sum assured together with the bonuses can protect the savings by paying out lump sum benefit on death or maturity whichever happens earlier. Riders can be attached to these plans to include additional protection of the savings.
Unit linked plans: As the name suggests, these plans help the client to build savings by investing in one or more unit-linked funds. The client has the option to choose the cover he wants along with the savings. In the event of death during the term, the policy fund together with the cover amount is paid to the beneficiary. Some plans provide for payment of policy fund or the cover amount whichever is higher in the event of death during the term of the contract. The client can choose cover against death, critical illness or accident under the plans and charges are made to the policy fund to provide the cover chosen. These plans also provide investors the option to invest in funds with maximum exposure to equity to minimum exposure to equity depending on their risk appetite.
Protection Plans: Term insurance plans provide pure protection by providing a fixed or a decreasing cover, which can be availed by the client when he chooses to build his savings through instruments offered outside insurance. The wonderful feature of these plans is that one can protect dreams for creating wealth even before savings have already started.
Life Insurance policies do not only help an individual to create wealth, but also help him to protect wealth. Life Insurance also has the capacity to create and protect his dream of creating wealth in the future. Financial consultants can learn about the dreams of their clients and offer good advice to them by adopting the need-based selling approach.
Mr. Tripathy joined HDFC Life in 2004 and has been responsible for Marketing Strategy, Brand Planning, Advertising, Communication & Media, Customer Insights, New Product Development, Product Life Cycle Management, Online and Digital Strategy, E-Commerce, Customer Analytics, & Corporate communication. He started his career with GCMMF Ltd. in 1992. Since then he has worked with various reputed organizations like Frito-Lay (PepsiCo), Mattel and Reliance Infocomm before moving on to his current role at HDFC Life.View Complete Profile
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