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Business News/ Money / Personal Finance/  How can life insurance enable investors meet financial goals?

How can life insurance enable investors meet financial goals?

Life insurance is a crucial tool for long-term financial security and wealth creation, offering discipline and flexibility. It provides protection, growth potential, and a steady income stream, making it a smart choice for comprehensive financial security.

Life insurance provides the opportunity for consistent savings, long-term compounding, and protection for loved ones. (Photo by Vlad Deep on Unsplash )Premium
Life insurance provides the opportunity for consistent savings, long-term compounding, and protection for loved ones. (Photo by Vlad Deep on Unsplash )

In a world filled with endless options, products, it is crucial to select the right tools to build wealth and achieve long-term financial goals. The marketplace offers a multitude of financial products ranging from fixed deposits and postal savings to investing in equities. Amidst the plethora of options, there is one unsung hero quietly revolutionising the realm of long-term savings and financial goal attainment: life insurance.

Life insurance not only provides quintessential financial security but being a long-term product, it instils discipline, patience, and a holistic approach to wealth creation. It offers a distinctive combination of security, growth potential and flexibility, this is what truly sets it apart.

Instilling discipline and patience

Wealth creation is a long-term process and discipline is the most critical element. Only astute planning and commitment can guide us on our journey to achieve financial success. Unfortunately, with many financial savings products this discipline wavers as individuals get enticed by early gains or losses due to market fluctuations.

It is all too common to witness people losing their financial focus midway, succumbing to fears and rumours of boom-and-bust market cycles, and then hastily withdrawing investments. However, it is precisely in these moments of temptation and uncertainty that life insurance emerges as a true guardian of our long-term goals.

Life insurance savings products, with their lock-in periods, instil the much-needed discipline that safeguards our objectives. Systematic contributions aid in ironing out volatility while also allowing the contributions to compound. As the timeless wisdom suggests, success in the market is determined by the duration of one’s presence in it rather than attempting to time market movements.

For instance, consider a Unit-Linked Insurance Plan or ULIP, an investor who invests Rs. 1.5 lakh annually for a period of 10 years and remains invested in the policy for a total period of 25 years. Assuming a rate of return of 10%, the initial investment of Rs. 15 lakh will grow to approximately Rs. 1.10 crore. It is abundantly clear that long-term is the way to go.

While short-term investments may seem attractive, the cumulative impact reveals their drawbacks. The ULIP investment grew to Rs. 1.10 crore benefiting from long-term compounding and minimising transaction costs, while also providing life cover all along. In contrast, short-term investors attempting to time the market face higher costs and miss the compounding opportunities.

The lock-in period in ULIPs encourages individuals to think long-term and resist the temptation of impulsive financial decisions. By committing to this period, you develop a habit of consistent savings. This discipline helps you stay on track and maximise the wealth-building potential.

Catering to diverse needs

There are a few unique features available in some life insurance products, such as the option to receive early income. This distinctive feature allows policyholders to receive regular income payouts even before the policy reaches its maturity. This can be immensely beneficial for individuals who are looking to create an additional source of income to meet financial obligations. By leveraging the early income option, individuals can strike a balance between immediate financial needs and long-term wealth accumulation.

The unique aspect of life insurance is that it provides financial security to the family by way of life cover while pursuing the goal of wealth creation.

Life insurance companies have developed products that provide individuals the flexibility to receive the maturity proceeds either in the form of lump sum or as regular payouts for a specific period. A few ULIP products provide the Systematic Withdrawal Plan or SWP option which enables individuals to receive regular income while the remaining corpus continues to earn market-linked returns.

It is a no-brainer that as India transitions from an emerging economy to a developed one, the interest rates will most likely fall. By taking advantage of the current favourable conditions, investors can lock in their investments in ULIP debt funds at the prevailing high interest rates. This will enable them to not only preserve their capital but also maximise their returns.

ULIP products are a smart choice for long-term investments, offering a host of benefits. Investments up to Rs. 2.5 lakh per annum are exempt from tax, the maturity corpus too is tax-free.

Annuity products for a secure retirement

One crucial aspect of financial planning is securing a comfortable retirement, and life insurance offers a powerful tool to achieve just that. Annuity products – a strategic choice for individuals seeking a guaranteed income stream during their golden years and are only offered by life insurance companies.

One of the primary benefits of annuity products lies in their ability to offer a steady stream of income that is immune to market fluctuations. This is possible because the interest rate at which the annuity or regular income will be paid out is locked-in at the time of purchase. A predictable regular cash-flow provides peace of mind to retired individuals.

Life insurers have innovated and now offer annuity products which enable individuals to make systematic regular contributions over the long-term to build the desired corpus and thereafter receive guaranteed regular income.

Annuity products serve as a reliable bridge to a secure and fulfilling post-work life, enabling retirees to pursue their passions, travel the world, or simply relish the joys of family and leisure.

In conclusion, the proposition offered life insurance is relevant across the life stages of an individual. By providing comprehensive coverage, it offers protection for loved ones in times of a tragedy, while also serving as a valuable investment and savings tool. With its flexibility, adaptability, and ability to secure future goals, life insurance stands as one of the best choices for attaining comprehensive financial security. Embrace life insurance to ensure peace of mind and a bright future for you and your family.

Amit Palta, Chief Distribution Officer, ICICI Prudential Life Insurance Company Limited


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Published: 02 Oct 2023, 12:07 PM IST
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