Life is a long journey that includes many financial goals and many unexpected circumstances. You will always strive to provide a brighter and safer future for your loved ones, and having a solid financial plan in place can help you get there.
Financial planning is a systematic approach to determining whether your assets or resources are adequate to meet your financial objectives or cover any unexpected expenses in the future.
Without a life insurance policy, no financial plan is complete. As you get older, decide to get married, buy a house, start a family, and retire, life insurance keeps assuming more importance.
Why Life Insurance Is Important in Financial Planning?
A life insurance policy is an ideal financial product to include in your financial planning. It can provide your loved ones with a financial safety net in the event of your untimely death and help you achieve your financial goals in life. A life insurance policy is an essential component of your financial planning in the following ways:
1. It can secure your loved ones
Life insurance provides financial security for your loved ones. In exchange for life insurance, you pay a set premium to the insurer. In the terrible case of your demise, your family will receive financial support in the form of the sum assured and any additional benefits (if any) specified in your life insurance policy.
2. It can help you oversee long-term objectives
Long-term goals must be carefully considered, and financial planning for things like buying a home or a vehicle, sending your children to college, getting them married, and saving for retirement must begin early. You can achieve a number of long-term financial goals with the help of a life insurance policy that provides adequate life insurance coverage as well as maturity benefits. Choosing the best combination of long-term life insurance policies, such as ULIPs and endowment plans, can help you achieve all of
your financial objectives. This ensures that your investment will continue to grow for a long time and contribute to a financially planned and secure future.
3. It can give you the benefits of investments and savings
Certain types of life insurance policies, like ULIPs and Endowment Plans, also work well as a retirement and investment tool. The amount insured increases with various cumulative benefits, such as simple/compound incentives, set bonuses, reward benefits, etc., that the insurer gives you over the policy tenure.
4. It can help you manage debts
You can also enjoy benefit of risk management against debts and loans with a life insurance policy.
In the event of your untimely loss, a life insurance policy with a policy term equal to the repayment period of the outstanding debt will reduce the likelihood that your loans will not be repaid. As a result, your loved ones will not be burdened by the liability of outstanding loans and mortgages after your death.
5. It can help you save on tax
Because the premium you pay for your policy is eligible for a tax break under section 80(80C) of the Income Tax Act of 1961, life insurance also serves as a tool for saving on taxes. In addition, according to section 10(10D) of the Income Tax Act of 1961, the insurance proceeds you get from your life insurance policy are also tax-free.
5 Steps To Make An Effective Financial Plan
It is not possible to achieve your objectives by just having a static financial plan. Both tracking your progress and remaining on the right path are crucial. Here are five suggestions to aid in creating a successful financial plan:
1. Evaluate your current financial status
Determine your present financial condition to begin creating your financial plan. To do so, you must examine variables like income, expenses, debt, and investments. This will give you a fair idea of the possibilities that your financial situation allows.
2. Set up your financial goals
Financial planning requires determining and separating short-term and long-term goals. You can make a list of them to better understand how to chart the timelines of your financial plan. You should think about things like when you want to marry, have a child, retire, and so on.
3. Pick the right investment strategies
A financial plan can help you make better investment decisions. Understanding your cash flow makes it easier to select the appropriate investment strategies to help you achieve your goals. For example, a ULIP (Unit Linked Insurance Plan) can let you earn market-linked returns as per your risk appetite. Guaranteed Income Plans can be
another option to accumulate savings if you do not want to take risk and get guaranteed returns.
4. Select the ideal life insurance policy
Once you are aware of your requirements, choosing the right type of life insurance policy that matches your objectives and expectations is critical. For example, a term insurance plan might be ideal for you if you are just looking to get life cover for a limited period. But any other life goal would require a policy with returns, like a ULIP or an endowment plan.
5. Revisit the plan periodically
It is essential that you stick to your financial plan once it has been established. A financial plan must be followed and evaluated on a regular basis once it is created. It is critical that you keep an eye on it and are aware of how your investment plans and assets are performing. The key to achieving all of your financial objectives is to constantly monitor your strategy to see if it requires any changes. Your financial needs will not remain constant, and you must always adjust your plan to reflect your current situation.
