Insurance is an integral part of comprehensive financial planning. The saving towards the future goal is not the only thing which can solve the financial problem for life. There are accidents and unwanted events to happen in life. What about the financial planning when the only earning member of the family dies due to accident or health problem. How will the dependents survive without money in absence of the earning member?
If you want to see your loved ones not to struggle for their bread and butter when you are not around, you should ensure that financial goals are not hampered. How you can ensure that financial goals are intact even if you are not there. A right amount of insurance plan will help you to achieve.
Now the issue is life coverage can be met by term insurance as well as traditional life insurance. You get the maturity benefit on traditional life insurances whereas term insurances are specially designed with no maturity benefit. Though some of the insurance companies are coming with maturity benefit with term insurance plan also, it is not advisable to have a maturity benefit with term insurance. It is increasing the premium with a high margin.
What is Term Insurance?
Term insurance is one kind of an insurance policy by which the nominee/ beneficiary gets the offered financial coverage in case of insured person’s demise. This is covered up to a certain age of the insured person. The insurer or insurance company pays the insured amount to the beneficiary.
Why is Term Insurance Required?
Term insurance is of utmost important as far as financial planning is concerned. The following reasons are the smart enough to buy a term insurance.
- Cost Effective – Since there is no maturity benefit like endowment insurance, it is less costly and you have to pay a low premium for a high amount of life coverage. You can buy a term insurance with a lesser cost than endowment insurance. You can have coverage of Rs 1 Cr at a very minimum cost of Rs 8000 per year. In this regard, start the insurance at an early age when the premium is low. If you buy the insurance after 35 years, it will cost you much.
- Higher Risk Cover – The life coverage of this type of insurance is very high with a low premium. The higher coverage will take care of your all financial goal even if you are not around your family. Normally, ten times of the annual income is considered as the right insurance cover. A lower amount of insurance coverage cannot serve the purpose of financial security.At the same time, too much insurance coverage is also bad for your financial health.However, the risk cover can be changed time to time according to your requirement. As your financial liability changes, you should change the coverage. As an example, you should increase the cover when your children’s education starts.
- Flexibility– the flexibility is a great advantage for a term insurance. You can buy a term insurance for 5 years, 10 years, 15 years any duration you want. You can change the plan every year and customize it according to your requirement. The sum assured can also be changed by giving a simple request to the insurance company. Obviously, the premium will be high if you increase the life cover.
- Online Buying-You can buy the insurance online where the broker is not present between you and the insurance company. Since there is no broker, the allocation charges are less, and the insurance premium is low.If you are not comfortable with online buying, you can take the help of a broker. The brokerage charges for a term insurance is comparatively lower than the other insurances. The average broker charges for a term plan comes around 5%-6% of the yearly premium.
- Protection from short-term liabilities – You can change your life coverage according to the short-term liabilities like the car loan, personal loan etc. Take the life coverage considering the loan’s liability and once the loan is repaid reduce the life coverage.
As discussed in the Sl no 2 above, the life cover is to be changed the time to time according to your changing needs and liability in life.
Also Read: Five Reasons Why You Need Home Insurance
- Rider Benefit – Rider is the additional benefit you want to have with your life insurance such as accidental benefit, critical illness benefit, benefit due to permanent and partial disability etc.Suppose, you have met an accident and it causes a serious injury. Because of the injury, you are not able to go to the office and it results in pay loss from the company. You will have three months’ salary or a fixed amount which will help you to spend in those three months.This kind of benefits can be helpful for a person who travels a lot and prone to accidents.It comes with life insurance with a nominal fee over the premium.Consider of buying this rider only if the same is required for you. Don’t be lured by the marketing plans of the insurance company.
- Low Claim Rejection – Term insurance has the history of very low claim rejection. If you complete ten years of insurance, the chance of claim rejection is very less. In the case of your death, your family should not experience difficulty over claim settlement. So this is a very important point to take care while buying a term insurance for you.
The added advantage of buying a term insurance is tax saving. You can save income tax on the premium paid under section 80C of income tax. Also, the benefit from the insurance to your family member or beneficiary is tax-free provided your annual premium is less than 10% of the sum assured.
A term insurance plan is the simplest of all the insurances which have full insurance coverage with no maturity benefits. You just buy the insurance and renew it every year. And when it is required, the beneficiary will have the money. You are free from worries about your family in case of life’s uncertainties and accidents. You can enjoy your life while saving to achieve financial goals. That’s why a term Insurance plan is the best fit in everybody’s portfolio.
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