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We all aspire to accumulate wealth and the key to doing that is discipline. Discipline is about investing systematically and for the longer term and more importantly, it is also about protecting our investments. There are unexpected emergencies that may occur and may lead to either not being able to invest that month, or even worse, we may have to liquidate some of the investments to meet those unexpected expenses.

It is critical to ensure that we protect our investment planning against any such eventuality. Therefore, one should look at insurance as a part of the investment strategy, instead of just simple protection.

When we view insurance as a strategic investment instead of an “expense”, we wouldn’t have to deplete our savings in the face of uncertainties, emergencies, or healthcare expenses as we’d already be insured. Hence, preparedness is key for a well-rounded financial plan. When we are prepared, investments focused on building wealth and purchasing insurance can work hand-in-hand, without hindering the growth of either. Health & Life Insurance also provides tax benefits under 80D and 80C.

For example, the recent global crisis caused by the Covid-19 pandemic is a testament to the true value of insurance as a risk mitigation and protective measure against such unforeseen events. Many individuals experienced disruptions in their financial goals as they had to break their piggy banks to manage the escalating healthcare costs during this time. But those who had health and life insurance were better equipped to weather the storm.

At PhonePe, we are focused on helping Indians ‘save their savings’ effectively. For this, it's critical to have an in-depth understanding of the role of insurance in investment planning, especially in time for the new year, 2024.

Preparing a safety net the right way in FY2024

Did you know that in India, the traditional preference for physical assets and fixed deposits in banks has gradually shifted towards investment in financial assets like mutual funds and stocks? This is a notable shift reported by CRISIL Market Intelligence & Analytics. Interestingly, this trend is reflected in the increasing participation in the stock market, with the National Stock Exchange (NSE) recording a substantial 26 per cent year-on-year rise in demat accounts, reaching 127 million as of August 2023.

Although there is a visible increase in such financial aspirations, many ignore insurance as a critical component in their overall investment strategy. It highlights the need for heightened awareness regarding the importance of financial protection.

Tailoring health insurance for optimal coverage

Imagine this -- Mr Rama is a middle-class working professional from Punjab. He dreams of owning his perfect home one day and he has been consistently setting aside funds for the down payment. But what if an unexpected health crisis costing between Rs 5-10 lakh arises during this saving period? This sudden impact on his finances could significantly prolong the time needed to save up for the down payment, potentially extending it by another 3-5 years. But, let’s say Mr Rama has health insurance coverage of say, Rs 10 lakh costing around Rs 700* per month or roughly Rs 8,000* per year. He can easily handle such unforeseen medical expenses and continue his journey toward buying his dream home without sacrificing financial stability.

Always ensure to have sufficient health cover based on health, lifestage, and investment commitments. Another critical factor to consider is medical inflation and one must ensure that health cover is for the right amount based on the current and future medical costs. One could also think of a cover amount as high as Rs 50 lakh or more. Interestingly, even a 5x increase in the cover amount will only lead to a 2x increase in the total premium.

Simply put, get the right insurance cover that is suitable for a lifestyle that won’t compromise other investments and wealth creation plans in case of any medical expense.

Numbers quoted are for rough estimation only and do not represent actual costs involved

Facing the financial impact of unexpected loss with life insurance

Picture this -- Mr Srinivasa, a resident of Tamil Nadu, made a significant investment in a Rs 60 lakh house by opting for a 15-year EMI plan. Six years into diligently meeting the EMI commitments, his untimely demise leaves his family grappling with the financial responsibility of settling this EMI for the remaining nine years. Their lack of financial readiness to handle this additional monthly expenditure has resulted in the loss of both the house and Mr Srinivasa simultaneously. However disheartening this scenario may be, it serves as a reminder of the vital role played by Term insurance coverage. Such coverage can provide families with the necessary support to navigate the financial impact of an unexpected loss and safeguard assets they are emotionally tied to.

Term plans prove invaluable, ensuring stability in your family's lifestyle even in your absence. Ideally, it's recommended to choose coverage that is 15x-20x times your current annual income, or at the very least, enough to cover any outstanding financial responsibilities, such as loans, debts, and lifestyle expenses. Whether you're signing up for a Term plan in the upcoming year or adding more to your existing coverage, it's crucial to align it with your family's existing lifestyle to shield them from the impact of a potential financial burden due to unfortunate circumstances.

India’s insurance growth: Embracing digital transformation is the future

In the past, purchasing insurance was often a difficult process due to a lack of information and other documentation issues. The Insurance Regulatory and Development Authority of India (IRDAI) is bringing lots of changes to ensure insurance offerings reach everyone so that the vision of 'Insurance for all by 2047’ can be achieved.

To achieve this goal, it will be critical that Insurance products are easy to understand, easy to buy, and most importantly the best product suited to prioritise one’s needs over everything else.