As a young adult, you have many decisions to make at the start of your professional life. And while the new opportunities, financial independence and future prospects seem exciting, it is very important for you to plan for your future. You must give a serious thought about your finances and identify what the best investment avenues are. Amongst several financial decisions that you need to consider at this juncture, insurance is a vital one. It not only safeguards your finances from unforeseen situations, but also helps build a solid financial foundation, considering that you force yourself to set a small corpus aside towards policy premium.
Let’s look at various insurance options available for you at this stage:
Health insurance plan: Our changing lifestyle has made us susceptible to health ailments such as heart diseases and cancer. Moreover, with diseases such as dengue and swine flu epidemic looming in the background, it only makes sense for you to buy an individual health insurance policy. This is irrespective of whether or not you are covered under your employer’s group health insurance scheme as it wouldn’t be sufficient to meet your future requirement, given the rising medical cost and inflation. Besides, your health insurance premium will be much lower at this age as insurers generally classify youths as “low-risk”.
Consider opting for a health cover with minimum sum insured of Rs 5 lacs. This would cost you somewhere around Rs.6000 per annum. If you are already covered under group health insurance plan, you may get yourself a super top-up plan instead of buying an individual health plan.
Personal accident cover: We like living on the edge when we are young and this makes us susceptible to accidents and injuries. As per report by Road transport and highways ministry (2014), the age group of 15-34yrs accounts for 53.8% of total road accident fatalities. This is good enough reason for you to consider buying personal accident cover. A personal accident cover accounts for all kind of outcome of an accident, including death, permanent disability, temporary disability and even minor disabilities such as fractures. The lump sum amount that you receive from the insurer can be utilized for medical treatment, rehabilitation as well as income replacement. These plans are quite affordable and would cost around Rs 800 p.a for Rs 5 lacs cover (1 year tenure).
ULIPs: Consider investing in ULIPs if you are looking at dual benefit of insurance and investment in one package. You are young and hence, should not shy away from investing in market-linked products that may fetch you higher returns in the long-term (10yrs). ULIPs return on investment ranges anywhere between 10-15% on an average, depending on the fund allocation between equity, debt or hybrid funds. In fact, if you look at past 10yrs trends, markets have always given superior returns on investments. Invest in ULIPs as per your risk appetite.
Term insurance plan: I recommend term insurance plan for those who have dependent members and financial liabilities to take care of. If you fall under this category, then there is no reason for you to avoid getting yourself a term insurance plan, even if you are in your early 20s. Term insurance is pure life cover and must not be treated as an investment. Its sole purpose is to ease-off the financial burden of your family should anything happen to you. Consider opting for a higher sum assured. This shouldn’t be less than 20X your annual income. If you were to buy Rs.1cr term plan that would cover you up to 70yrs of age, you will have to pay somewhere around Rs 7000 p.a.
Remember, twenties mark several changes in your life - financial as well as personal. You are at the threshold of your professional life and your days of financial dependence are over. Do not ignore insurance during this stage as it is the easiest as well as the safest way to secure your future.
-by Tarun Mathur, Director-Policybazaar.com
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