For long-term financial security, millennials must not only provide social security for their young families, but also ensure that their financial burdens are not passed down to their families, says Casparus Kromhout, MD & CEO of Shriram Life Insurance Company.
Understanding the importance of life insurance for millennials
At 34 per cent, millennials form the key portion of India's total population.
At the current age range of 27 to 42 years millennials form the majority of the working population in the country. Further, the median age of the country has been touted at 28.2 years.
The statistics indicate millennials as the driving force in the Indian economy being in a 'working' age bracket would also be estimated to be going through the significant lifestyle milestones like marriage, starting a family, buying a house, etc.
The favourable economic conditions in the country, progressive polices, greater entrepreneurial opportunities, better understanding of investment opportunities, easy availability of finance and technology adoption have empowered this portion of the population in unprecedented ways.
Millennials have a distinct outlook towards life, offering a unique and interesting perspective on how they choose to live, work and when they choose to retire. However, it has been noted across the industries that the COVID-19 pandemic has impacted and fuelled new behaviour in this segment.
This translates to how they spend money -- the loans they take, the jobs they prefer, the family values they are developing and the kind of diseases/calamities they are exposed to.
A few examples that have come forth of the changes in economic behaviour being the increasing investment in luxury real estate from millennials in the current year, the higher adoption of fintech and the buy-now-pay-later culture.
Most millennials are EMI takers with a significant portion of their salaries contributing to monthly instalments for their cars, apartments, or their entrepreneurial ventures.
Thus, millennials are currently not only at an age group of being the key bread earners for their families, but are also a generation with higher aspirations and related financial risks. Climate change also poses a lot of anxiety where floods, hurricanes and wildfires are crippling lives and homes to create lifestyle-changing outcomes.
Taking life insurance in these cases is critical not only to provide social security for their young families, but to also ensure that their financial burdens are not passed down to their families.
Advantages of starting early
The main advantage of starting early while taking a life insurance policy is that a young policyholder will have lesser health complications and liabilities than an older policyholder. The premium therefore will be far lesser, enabling the policyholder to pay less as they grow older.
If one takes a policy when they are in their mid-fifties, the premium would be higher as they will have greater health/life risks to deal with.
If one takes an endowment plan, it will serve as a good savings plan for the long run -- helping not only to save tax but set goal-based savings like paying off an education loan or getting your children married.
Types of life insurance policies
Pure Term Life Insurance: These policies only secure your life and do not give you any returns. These policies secure your family's future upon your passing and the death benefit will be a surplus amount that will be given to your family upon death claim intimation.
Endowment Plan: These plans are savings plans designed to help you get coverage as well as act as savings instruments giving you a lump sum upon maturity. Like all other insurance plans, endowment plans also help you save tax under Sec 80C of the Income Tax Act.
ULIPs: Unit Linked Insurance plans are market-linked plans offering you cover as well as wealth generation opportunities. Your premium is divided into parts and distributed according to your risk tolerance.
You can switch between equity, debt, and both and reap benefits of the markets over a period. You can opt to get maturity benefits also over fixed intervals.
Annuity/Pension Plans: Plans that provide varied kinds of income options during retirement years to ensure that a person's basic needs are met.
Tailoring coverage to individual needs
While deciding which life insurance is most appropriate for an individual, it is best to understand one's financial needs and liabilities and take a solution that best meets those needs.
HLV is a good indicator to decide the amount of coverage one needs for their families. Current life stages can further decide savings needs and future aspirations goals that would need savings.
In addition, understanding one's liabilities and dependencies is also crucial before zeroing in on a life insurance solution.
Dispelling common myths about life insurance
One of the common myths about life insurance is that it is at times touted as an investment that does not reap results. However, life insurance in financial planning plays a pivotal role in standing by as financial security for your family in your absence. It will also ensure that your goals are also achieved without disruptions such as your children's education, their wedding or even buying your dream home.
Life insurance is meaningless and a waste of money if one has other means of savings. This is not true as different kind of savings have different objectives.
Life insurance works to protect your loved ones in your absence, enabling them to live comfortably in your absence, ensuring all their needs are met.
Although there are life insurance schemes that may help you save money, its primary objective is to cover the human value of life.
Life Insurance can be taken even if you have other kinds of illnesses. Every insurance company may have a scheme that will accommodate even a person with illnesses to take policies.
Life insurance is expensive. Actually, premiums are on the lower side when one takes the policy early on in life. Pure term policies taken early in life comes to a very marginal amount and one may be rest assured that it will not interfere with a person's main expenses.
