Since liberalisation in the early 1990s, the Indian economy has witnessed sharp growth leading to rise in per capita income. According to the World Bank, India’s per capita income has grown from US $ 443 in 2000 to US $ 2104 in 2020.
Growth in domestic demand has been the primary lever in driving the economy with consumer expenditure on goods and services forming a significant part. However, when the economy hit a massive roadblock due to Covid-19, the large-scale lockdown dented the country’s economic growth, affecting livelihoods and financial savings of families.
This begs a pertinent question: how can families shield themselves from a financial shock? A large part of achieving financial security involves embarking on the savings journey early in one’s lifetime, remaining committed for the long-term and having a disciplined approach.
Life insurers offer traditional savings products that enable customers to achieve their long-term financial goals be it wealth creation or receiving regular income to supplement their existing income, whilst also providing life cover. These products offer the flexibility to decide the total period for which the premiums need to be paid and the tenure of the policy. Let us take an example to understand how investing in a life insurance traditional savings product can help in tackling multiple goals at the same time using the flexible payout option.
Radha, 35-year-old corporate executive and a single mother wants to be able to send her son to one of the best schools in Delhi and simultaneously build a savings pool for his higher education. She starts investing Rs 2 lakh annually for the next 10 years in a traditional savings product that provides her the flexibility to start receiving income from the 2nd year onwards.
As she receives Rs 50,000 from the 2nd year onwards, this extra income can help towards the school fees, providing her the much-required relief. After her investment period, she will continue to receive annual income to the tune of Rs 2.35 – Rs 2.50 lakhs for the next 10 years, which she can use to fund her son’s higher education. Further, she has a life cover of Rs 20 lakh throughout the tenure of the policy.
By investing in a traditional life insurance saving product, Radha stands to gain from receiving a tax-free maturity amount as also the option to choose from various payout options in the form of regular income for a limited period or go for the lump-sum option.
For e.g. had Radha’s financial goal been to make a down payment to purchase a house, she could have chosen the lump-sum payout option to ensure the fruition of her financial goal. Since savings products offered by life insurance companies provide a life cover, it ensures Radha’s dependents also have financial security in case of her untimely demise. The death claim payout can provide her family with financial resources to continue with their lives.
Traditional long-term savings products offered by life insurance companies’ aid customers in achieving their financial goals and are often referred to as goal-based savings products. There are an array of savings products on offer and customers should conduct a need analysis that takes into account their income, lifestyle, age, risk appetite, financial liabilities, etc and choose a product that best serves their needs. Importantly, these categories of products are insulated from market volatility, offer safety of capital and steady returns over the long term.
The author, Amit Palta, is Chief Distribution Officer at ICICI Prudential Life Insurance Company. The views expressed are personal