Life insurance is an important part of your financial portfolio. It helps provide financial security to your family in case something happens to you. But for those investors who are investing for the first time, term plan can be a good option as these low-cost life insurance plans offer substantial coverage at an affordable premium.
Despite its importance, not many people know what is term insurance and how does it work.
For starters, a term insurance plan is a pure life insurance product that only offers death benefit if the policyholder passes during the policy duration. This amount can be used by your dependents to stay financially independent and fulfil all your long-term goals without compromising on their lifestyle. Needless to say, there is no other insurance product as crucial as a term plan.
In this article, we will look at some reasons why you must consider investing in a term insurance plan.
1. It protects your family against life’s eventualities
You may have considered buying a term plan but have been putting off your decision for some reason. It has been on your to-do list for some time but you have not invested yet. But imagine if something were to happen to you during this time. Can you bear to think that your dependents will have no source of income to continue living their life comfortably? If the answer is no, then you need to have a term plan right now. It will protect your family in case of an eventuality and ensure they have enough money to stay afloat.
2. They are affordable
As has been mentioned before, term plans are cheap and cost very little to cover your life risk. If you are healthy individual in your late 20s or early 30s, you can further reduce the premium and lock-in that great price for the entire duration of the policy. These plans can be easily integrated into your long-term investment strategy without burning a hole in your pocket.
3. Peace of mind
When you know that your life is covered with a term plan, you will feel an innate sense of peace that your loans and liabilities will be taken care of, even your family’s main source of income is no longer there.
4. Don’t worry about premiums increasing with age
If you invest at an early age, you can rest assured that the low-cost premium you enjoyed in your 20s will remain the same long after you have crossed your 40s. You can start by investing in a basic term plan when your income is low and consider taking on more insurance more as your responsibilities and income increase. As a general rule of thumb, you must review your insurance requirements every 5 years to make sure that your cover is adequate.
5. Secure your partner’s financial wellbeing
You may have planned a lot of things together with your spouse, such as watching your kid go to school abroad or paying for your child’s dream wedding. But life is uncertain and may have other plans. By protecting them with a term plan, you can ensure that these plans are fulfilled exactly as you had envisioned and that your partner does not have to rely on your children for financial support. Don’t forget that there are also number of tax benefits that you can enjoy while being invested.
6. Expand your coverage with riders
Most life insurance products allow you to expand the coverage of your policy by adding riders to the policy. You can choose from a wide range of add-ons, such as critical illness cover, return of premium, accidental death, etc. to cover more risks. These riders can be added for a small premium to your existing term plan.
7. Choosing the right sum assured
Now that you know the importance of a term plan, you need to consider the sum assured that will be enough to provide that protection. Ideally, it should be at least 15-20 times your current annual income to adjust for inflation and account for any liabilities that you may add on over the course of your lifetime. You can also use an insurance calculator to calculate exactly how much money you will need to pay for the expenses and maintain your family’s lifestyle.
8. Choosing the right tenure
Most people believe that longer term duration is better. But as you grow older, your income stops and so does your dependence on it. Therefore, it is better to have a policy duration of retirement age + 5 years to keep the premiums low and cover the risk only till you are employed. When you are buying a term plan, be sure to keep all these points in mind and only choose the products that meet your lifestyle requirements as well as your budget.