Insurance Planning for Working Couples
As the famous saying goes: “Failing to Plan is Planning to Fail” and it practically holds true in every sphere of our lives! Be it academics, career, a leisurely vacation, finances, etc. planning is essential for a smooth functioning of life.
Amongst all such mundane planning, the most important planning that each and every household has is Financial Planning. This has gained more importance in today’s day and age since the modern day expenses tend to burn a hole in the common man’s pocket. Sustaining the monthly budget is proving all the more difficult with the rising inflation. However, when both the spouses are working, there is a relief in meeting expenses since there is the inflow of dual incomes thereby taking the edge off expenses. As is the case with other things, planning is important even in case of working couples especially insurance planning.
Let us take the example of Ajay and Neha, aged 35 and 33 years respectively. Both are employed in reputed MNCs earning a combined income of Rs 20 lakhs p.a. As with most households, they have a home loan and a car loan and are also planning to have children. However, they are in a tight financial situation wherein after taking away the expenses, they have a combined annual savings of only Rs. 4 lakhs. Thus, after soliciting with a financial planner, they have shortlisted various avenues of savings to create wealth, insurance being one of them. But have they selected the right cover for the right purposes?
Importance of Insurance “Planning”
Insurance, consistent with the general perception, is a product often ignored. Even if availed, the coverage is most often insufficient. People cite the reasons of non-affordability to shy away from insurance plans and the reason somewhat holds relevance in case of single income families where the priority lies in meeting the day-to-day expenses. But for double income families, insurance is all the more necessary for several reasons. Working couples must ensure proper insurance coverage through sound planning.
Tax benefit is subject to changes in tax laws
Insurance Planning is a very important part of Financial Planning
Let us look at the reasons why:
- Income Replacement on death– It is said that single income families suffer the most when the bread-winner dies but don’t the double income families also suffer? When both the spouses are working, each depends on the other’s income to take care of the joint lifestyle expenses. Ajay and Neha rely on both their incomes to meet their monthly expenses and the absence of any one would definitely put a strain on the other’s income. In that case, having a term plan for both the spouses is necessary so that the claim provides a helping hand to manage expenses.
- Illness or disability provision – The dual source of income is possible only when either are in active employment but what about contracting illnesses or becoming disabled? If any of the partners suffer any critical illness or becomes disabled, they would not be gainfully employed and the income stops. Coupled with that, the prevailing expenses increase with respect to the illness or disability and to manage that, couples should have proper health insurance, personal accident, and critical illness coverage to offset the financial emergency.
- Unemployment – Everyone fears this word and yet it is inevitable. Losing one’s job is a nightmare and in the absence of contingency fund, meeting the recurrent expenses is a curse. Insurance ensures building up a corpus to take care of emergency needs or situations.
- Planning for children’s future – With the same example of Ajay and Neha planning to have a child and with family planning comes the aspect of financial planning as well because the baby would add to the expenses. Moreover, both being so qualified, dream of a stable future for their child and for that they need to provide for about 10-15 lakhs of corpus to take care of the child’s educational needs. Buying a Child Plan, be it Traditional or a Unit Linked Plan (ULIP) with a long term horizon would ensure a sound corpus even if the parent is not around. In fact, most specially designed child plans have a three-fold benefit:
- The maturity benefit ensures that the child’s future needs are met and the education is not hampered.
- Even if the parent dies within the policy, the plan continues on its own as per the pre-defined scheme and future premiums are waived off.
- The maturity benefit would anyways be paid irrespective of whether the parent is alive or not to meet the educational expenses of the child as desired.
- Creating Assets and paying off Liabilities – A major chunk of their combined income is spent in paying off their car and home loans. Neha also dreams of going on a Europe tour but first needs to pay off her liabilities. Having a mortgage redemption insurance plan and a ULIP takes care of the liabilities and also helps to create assets enabling Neha to fulfill her dream.
- Tax Savings – I am listing the tax factor at the end but generally people see insurance primarily as a tax saving tool. Tax saving is just a feature of any insurance planning and it should not be the purpose.
With the fortunate increase in the exemption limit to 1.5 lakhs, there is a provision of additional investment of Rs 50,000 more which can be channelized into investment linked insurance plan for capital appreciation along with protection.
All said, insurance planning is mandatory for every individual but for working couples, it becomes all the more necessary since there are two incomes to plan for and to plan with. I hope that Ajay and Neha received sound solicitation to avail a sufficient health and life insurance coverage for those rainy days and a sunny future.