When it comes to financial planning, we usually think of investing in various instruments to get maximum returns. However, we miss out on the financial protection of life, i.e. insurance. While growth of wealth is essential to meet life goals, financial protection from unexpected shocks is equally important.
If you are the sole earner of the family, you should definitely consider buying a term insurance plan. Term insurance is a contract between the policyholder and the insurance company wherein the company pays a specific sum to the policyholder’s family at the time of death of the policyholder. This sum is paid in exchange of a premium paid by the insured for a specific duration.
Why term insurance?
Term insurance is the simplest form of life insurance. It provides a financial shield to your family against unfortunate circumstances. Without a term plan, it would be difficult for your dependents to manage household expenses, pay off loans, children education fee etc. Moreover, nowadays term plans are available with extensive features to give your family lifelong protection such as:
Higher coverage at low premium: There are a plethora of options wherein term plans with as high as Rs 1 crore cover are available at an affordable cost. Moreover, the premium can be paid in monthly installments for your comfort.
Buy early and save incredibly: If you buy a term insurance policy early in your life, the premiums are much lower. Also, you will pay this fixed amount throughout the policy term.
Coverage upto 99 years: Coverage period for term plans is lifelong i.e. upto 99 years.
Protection against death, disease and disability: These plans provide all round protection against death, critical illness and permanent disability.
Financial protection against loans: In case of sudden demise of the insured, a term plan helps to pay off any debts and liabilities of the family.
Adding riders for comprehensive coverage
Policyholders have the option to tailor their term plan according to their needs. These are known as riders which are add ons that can be added to the policy to increase benefits. They usually come into effect when the particular event for which the rider has been purchased happens. For instance, if you add an income benefit rider, your family will receive monthly income for a certain period of time in your absence. This rider is suitable for a policyholder who is the sole earner of the family.
You can also add critical illness rider to your policy. It provides a lumpsum payment to the insured if he/she is diagnosed with a critical illness during the policy period.
Waiver of premium rider ensures payment of future premiums due to a loss of income or disability of the policyholder. Through this rider, the policy won’t expire in case you are not able to pay premiums because of a disability or physical impairment.
Deciding term cover
When purchasing a term plan, it is suggested that the sum assured/coverage amount should be 10 times your yearly salary. You should also take other factors such as child’s education, loans, home, car, retirement of spouse, household expenses, inflation into account. It is important to consider your liabilities when deciding the coverage of a term plan.
With nuclear family system becoming the usual order in India, it is paramount to protect your family from risks and perils. When we are young, we usually believe that we are there to run the household, however with the increase in sedentary lifestyles, even younger people are falling prey to critical illnesses and fatalities. Along with going through the emotional loss of a breadwinner, the family has to bear financial consequences too. A term plan guarantees that the family members are given much needed financial support and continue to maintain the same lifestyle in the absence of the breadwinner. Hence, it should be your first step towards financial planning.
(By Sanjiv Bajaj, Jt. Chairman & MD, Bajaj Capital Ltd)
Disclaimer: This is the author’s personal opinion. Readers are advised to consult their financial planner before making any investment.