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Thursday, July 02, 2020

COVID-19 pandemic: Building a robust financial portfolio by investing in insurance plans

Coronavirus Health Insurance Policy and Plans: There are a plethora of key investment lessons that can be learned and if we decide to take them on board, we could come out of the lockdown with better moneymaking skills.

Updated: June 2, 2020 4:57:36 pm
Protection is one of the finest ways to mitigate the potential risks and challenges that may come across your financial portfolio. (Representative image, source: Getty Images)

Written by Vaidyanathan Ramani

Coronavirus (Covid-19) Insurance: When it comes to the COVID-19 pandemic that has infected over 5 million people across 215 countries, every day is a learning day – and that is because we scan the news for maximum information, we are all learning a great deal about how the virus behaves under different conditions, measures being taken to control the spread of the virus and how scientists continue to search for new drugs and vaccines.

However, as investors, we have lessons to learn too – about how the stock markets and assets react under extreme conditions like coronavirus outbreak, and how we should build our investment portfolios to be more robust in the future, providing the investment growth we all crave for. There are a plethora of key investment lessons that can be learned and if we decide to take them on board, we could come out of the lockdown with better moneymaking skills.

‘Protection’ – The Foundation of a Resilient, Long-term Financial Portfolio

Protection is one of the finest ways to mitigate the potential risks and challenges that may come across your financial portfolio. There is enough circumstantial reference that showcases that the damage done due to unforeseen health expenses or loss of income due to the unexpected death of the family’s breadwinner is significantly high. Apart from leaving a major dent in the family’s savings, lack of protection can leave you and your family grappling with undue stress of day-to-day living apart from coping with stress or tragedy. It is very important to include protection products in your investment portfolio in order to help your loved ones to retain their lifestyle and long-term financial goals even in your absence. Though it is advised that you include protection plans in your investment portfolio at the beginning of your professional career as the sooner you buy the lesser you pay for premiums.

Health Insurance

To deal with ongoing coronavirus pandemic-which has become a common affair in the last few decades, it is best advised to cover you and your family under a comprehensive health insurance policy. God forbid, in case you or any of your family members get infected by the novel coronavirus, you must have a comprehensive health insurance plan to pay for the hospitalisation expenses. It is important for you to know any claim due to coronavirus will be payable by your insurer if you are hospitalised for at least 24 hours. Every basic health insurance plan will compensate the policyholder for expenses incurred on pre-hospitalization, post-hospitalization, in-patient treatment, OPD and ambulance expenses should one seek treatment for COVID-19 infection. However, while buying health insurance, it is important to have an adequate sum insured as treatment of such pandemics is quite costly and one must have sufficient coverage to pay for the expenses. For a family of three, with 2 Adults and 1 Kid, 1 crore sum insured health plan can be bought at Rs. 17,000 – 18,000 annual premium.

Term Life Cover

The uncertainty and unpredictability of events like COVID-19 pandemic in life give utmost importance to buying term life insurance plan. A term life insurance plan not only protects your family members from the unexpected vagaries of life and financial disasters due to instances such as accidents and critical illnesses but also gives them financial stability from the eventuality of the unexpected death of the breadwinner of the family. Term life insurance plan is one of the most efficient ways to protect your family from financial instability. Under a term life insurance plan, the dependents of the policyholder are paid the entire sum assured in case of death of the policyholder within the policy tenure. The amount received by the dependents helps them to tide over any financial crunch. A term life insurance plan is the only kind of insurance product that offers you maximum protection for the lowest cost. Moreover, now you can cover your life up to the age of 99+ years which was not possible to do till a few years back. For a 35-year-old individual, a term plan can be bought for Rs. 12,000 – 18,000 for a policy term of 70 years with Rs. 1 crore sum assured.

‘Wealth Creation’ – Important for Goal-Based Financial Planning

Each one of us have goals for our family members and ourselves and in order to achieve these goals, we work hard day and night to provide the loved ones with a better future. The most important thing to realize your dreams is planning ahead well in advance and to achieve these goals there is a need for a comprehensive solution that helps you achieve these dreams and can also be customized to match your needs while giving you peace of mind. One of the most prominent investment avenues is ULIP that young Indians look at while saving for their future financial goals. ULIP – Unit Linked Insurance Product – is considered as one of the most secured options in investing as it can earn you profits like no other investment plan. The youngsters are now gradually gaining interest in 4G ULIPs in order to gain higher and secured returns. The product has an advantage of in-built life cover, low charges, tax benefits, long term disciplined investment, and most importantly, the flexibility of partial withdrawals and unlimited fund switching.

A perfect combination of guaranteed protection, best returns, and maximum tax savings, you must make sure to include ULIP in your investment kitty. Of the various consumer-friendly benefits of ULIP, its most celebrated attribute is the freedom it gives to the investors of investing their funds in a mix of debt and equity funds. Moreover, the new-age online ULIPs have successfully become more customer-oriented by completely removing unwanted charges, except the fund management cost which is also charged in the mutual funds. As per the IRDAI guidelines, the fund management charges in new-age ULIPs are restricted to 1.35 per cent or less. The investor is allowed to invest in different proportions under the inter-fund transfer feature with unlimited switches. According to recent market findings, ULIPs usually generate at least 12-15 per cent of returns. For instance, if you buy a ULIP with Rs. 5,000 investments per month for 25 years, the post-tax returns on your plan after 25 years would be nearly Rs 75 lakh if your money grows at the least 8 per cent interest annually.


The author is Head-Product & Innovations, Opinions expressed are those of the author.

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