In an interaction with Adlin Pertishya Jebaraj, Correspondent at Finance Outlook, Rakesh Goyal – Director, Probus Insurance Broker Private Limited, shares that financial planning begins with risk protection, including health, life, assets, and liabilities, before wealth creation. He highlights a significant financial literacy gap in India, where retirement planning is often delayed as people’s priorities and mindsets keep changing.

Rakesh Goyal, with nearly three decades of experience in the financial services industry, has extensive experience in insurance distribution, channel development, and relationship management. He is credited with providing guidance through his extensive experience and understanding of the industry.

In today’s volatile economic environment, how critical is it to prioritize risk protection before wealth creation in financial planning frameworks?

Protection remains the foundational pillar of any healthy financial planning. People need to secure the proper protection of both themselves and their families before the wealth creation process can proceed at all. This is a protection in several dimensions- health, life, assets, and liabilities.

The accumulation of wealth is a gradual process that takes time and consistency. Nonetheless, financial stability can be destroyed by any unexpected occurrence without a strong protection framework in place. Thus, the initial thing every person has to do upon entering the earning aspect of life is to arrange proper insurance and risk cover. Only after assuring these necessities, people may proceed to wealth creation strategies.

What are the biggest gaps you observe in retirement planning among India’s working population?

The main problem is not structural in nature but psychological. Young professionals do not always prioritize retirement planning when they start their careers. The early earning years are normally concentrated on lifestyle dreams and not on financial security in the long run.

Retirement planning becomes the order of the day and is normally after an individual has passed the age of 30 years, when they have responsibilities like marriage, children and long-term engagements. The necessity to save towards future aspirations like the education of children and their retirement is more evident at that point.

Product suitability was also an issue in the past because most insurance products did not match the expectations of the younger generation. This is, however, changing very fast. The new financial needs are now more appropriately addressed with products like the National Pension System (NPS), annuity plans (immediate and deferred) and the changing insurance solutions. Although there is some improvement, wider usage will still develop with time.

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Can hybrid financial products effectively bridge the gap between protection and wealth creation? What are their limitations?

India is not new to hybrid financial products; these have been in existence in different forms over the years. Conventional insurance products have always contained an element of protection, and subsequent developments like unit-linked insurance plans (ULIPs) provided an integrated element of investment and insurance.

In this type of product, a part of the premium goes to market-based investments and the other part offers life cover. In the course of time, these products have been developed faster with greater flexibility and features.

Although hybrid products may play a role in providing a medium between protection and wealth creation, they have their limitations. This relies on the ability of people to comprehend and apply the product characteristics. To a large number of investors, these products provide a balanced strategy, though this is not always as efficient as the pure investment tools so far as returns are concerned.

How do you evaluate the cost-benefit trade-offs of insurance-linked investments compared to pure market instruments?

Insurance products are not mainly aimed at investment but at protection on a purely financial basis. Direct exposure to capital markets or mutual funds can be more profitable to disciplined investors who will have the ability to commit to long-term investing.

But the truth is that a number of people are not disciplined enough to invest in the long term. Equity or mutual fund investments are normally cashed in early to address the immediate requirements like travelling, buying cars or other lifestyle demands.

This is one of the places where insurance-linked products can be of particular benefit. They enforce some form of discipline, such as limiting the early withdrawals, thus promoting long time accrual of wealth. Even such instruments as the Public Provident Fund (PPF) have proven in historical times how limited liquidity can help in wealth creation.

Insurance-based investment products like ULIPs, single premium plans, or pension products may serve as an alternative to individuals who lack strong financial discipline. What makes these products special, besides offering protection, is that they enable long-term savings and may be competitive in their price and features.

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What are the key macroeconomic and demographic trends shaping the future of financial planning in India?

There is a major change in the macro financial behaviour in India. An increasing trend is emerging around disciplined savings and the need to invest in products capable of earning returns more than the inflation rate.

The retirement-oriented instruments, such as the National Pension System, are growing in assets under management (AUM). As an example, giant insurance companies already have significant AUM in this segment, which is a sign of intensive participation of investors.

Furthermore, there is a definite shift to more vibrant investment opportunities in place of traditional fixed deposits. This is in contrast to the past, where the investments in the bank as well as corporate FDs were more popular; however, the current investors are more accepting of capital markets, systematic investment plans (SIPs), as well as insurance-related products.

The world is experiencing uncertainties, but investment activity keeps on increasing despite the geopolitical tensions and economic shocks. Investors are becoming more and more aware that in order to build wealth in the long-term, they need to be exposed to instruments that yield more.

This changing attitude, along with improvement in the product innovation and financial awareness, is creating a more mature and progressive finance planning environment in India.