by Financial Planning refers to a comprehensive plan of your long term or short-term objectives for financial security. The purpose of financial planning is to form the foundation for a specific goal or destination in your life.
Life insurance is still a nascent idea and most people do not think about it until a major life change causes them to consider what might happen to their loved ones in case of any unforeseen circumstances. While the main objective of buying a life insurance policy is to protect oneself from unforeseen circumstances, it can also help in wealth accumulation, preservation, and give access to liquidity at the right time, if added as a component of financial planning.
Most of us usually get confused on how much to invest and where to invest; stocks, bonds, real estate and many others. Life insurance is a good investment tool, which is comparatively simpler, more affordable and most importantly caters to the different stages of the individual’s lifecycle.
Caring for a special needs child or aging parents
Life insurance plays a critical role in a financial plan if you have a special needs child or ageing parents that depend on your for financial support. Without the resources to provide for their continual care, family members will be forced to take on a stressful and lifelong financial burden. Life insurance proceeds can provide the financial support needed for these special individuals in your life.
Paying off a mortgage
Payments, taxes, insurance and interest. For most people, a mortgage is one of their largest expenses. For this reason, most couples shoulder this long-term financial commitment together. But if you were gone tomorrow, could your family afford such a large expense without your income? A life insurance policy can help provide your family with a lump sum of money to pay off mortgage debt, eliminating this large financial stress, as well as the possibility of a loan default or eventual foreclosure.
While the basic premise of life insurance has always been ‘protection’ , certain insurance products also provide the flexibility of it being used as a long term savings and wealth creation tool. These products allow the individual to systematically save over the long run and generate returns to create a corpus that can be used to fund different milestones such as child’s education, marriage or retirement. However, an oversight which many households typically make is that they benchmark the returns from life insurance products with other forms of investing options. In doing so, what they completely fail to comprehend is that the primary purpose of insurance is protection followed by returns and not the other way round.
- Income replacement for your survivors
- Investment/forced savings for you
- Reduced income and transfer tax liability
- A ready source of cash at a time when it’s likely to be needed most
- Funding of small business buy/sell agreements
