Financial Security is often touted as a prerequisite for fulfilling any long-term goal. The truth is that attaining financial security is possible for anyone, but very few people achieve it. It is a difficult process since you not only need a comprehensive plan but also to be persistent until you succeed.
The absence of financial strain is a sign that you are financially secure. You feel at ease knowing that your financial circumstances allow you to meet all of your demands more comfortably. Additionally, it may imply the following situations:
• There are enough emergency funds in the bank.
• You own sufficient revenue to handle expenses.
• You have no debt.
But no situation is guaranteed to last forever. So making a sensible financial choice is crucial to ensuring the family's financial security and building a solid financial foundation for them in case you are no longer around.
A term insurance plan is one of the best ways to ensure your family's financial security, primarily if they depend on you. A term life insurance plan is a financial tool that will keep your family afloat in an emergency by giving them financial security even when you are not there.
Why are Term Plans Integral to Financial Security?
A term insurance plan or policy, as the name implies, is a type of life insurance plan that offers you life coverage for a specific or predetermined tenure. If begun at a young age, it assists in providing inexpensive financial security for you and your family. In the event of the tragic demise of the policyholder, while the policy is still in effect, term insurance typically pays out a specified amount known as the death benefit.
The first and most obvious reason to get a term insurance plan is to create a sense of financial security for your loved ones in the event of any unforeseen tragedy.
How Can Term Insurance Plans Benefit the Policyholder?
• Low Premiums - Depending on the terms and conditions of the policy, you may be eligible for a term insurance plan for a reasonable premium. Generally, a term plan is less expensive than other types of insurance. It only provides basic life insurance coverage; no extra features or savings components exist.
• Starting Early Has Its Benefits - Your age, the tenure of the policy, and other health-related factors influence the premium you pay for a term plan. The premium will be lower if you buy a term plan when you're younger.
• Possible To Buy For A Short Term - A Term Plan can be taken up for as little as ten years. You can purchase a shorter plan if you have a personal or home loan. For instance, if the term of your mortgage is 10, you may opt for the same sum assured for a 10-year term plan. This guarantees that if you pass away while the loan is still outstanding, your nominees will be able to retain the home by paying off the debt.
• Predetermined Intervals - Some term plans offer increasing life coverage at predetermined intervals with an increase in coverage equal to a predetermined percentage. Because of this, the policyholder can increase the amount of life insurance coverage as their income and liabilities increase.
• Possible To Buy For The Long Term - Term insurance plans can be obtained for a long time. Although a term policy can typically be purchased up to the age of 70, some insurance firms offer coverage up to 75 or even the policyholder's entire life.
• Premiums Are Fixed - Fixed premiums mean that once the insurance company accepts your policy for a particular premium, they won't be altered or adjusted for the duration of the policy. You may be sure that you will be paying a fixed annual amount that won't change for that particular insurance period.
• Add-Ons/Riders - Some term plans allow you to add riders such as critical illness rider, accidental death benefit rider, etc. Riders are extra benefits that are optional and can be added on for a small fee on top of the primary insurance cost.
• Income Tax Benefits - You may deduct up to Rs. 150,000 in premium payments annually under Section 80C of the Income Tax Act of 1961. Additionally, the death benefit paid to your nominee is tax-free as per Section 10 (10D) of the Income Tax Act of 1961.
• Easy To Buy - Buying term insurance coverage is an easy process. The premiums of several term plans can be compared using an online term insurance calculator, allowing you to opt for the one that best meets your needs. You can buy a term plan online as well in a few easy steps by going directly to the insurance company's website. Remember that buying term insurance online can sometimes be less expensive and faster than going through intermediaries.
Which Liabilities Can Term Insurance Plans Protect Against?
The majority of people's financial portfolios consist of a few popular purchases. This includes buying a house, a car for convenience, and other everyday essentials. In addition, if you have children or a dependent sibling, you may be setting up money for their wedding and education.
People frequently use credit in one way or another to achieve these long-term aspirations. Examples are availing loans, paying off mortgages, lines of credit, and even credit cards. You can plan for all of these responsibilities and account for paying them off in due course by including term insurance plans in your portfolio.
In the tragic event of your untimely demise, your family and loved ones may be suddenly responsible for paying off these debts. But with a term plan, you may ensure that such unpaid bills do not burden your family. The death benefit from a term insurance plan guarantees they will receive a sizeable sum as financial assistance, which can significantly relieve them of these financial burdens.
How Much cover is needed?
A term insurance policy's sum assured is typically calculated as follows:
Minimum Sum Assured = Annual Income x 10 times + Loans/Liabilities
It is advised to go for 15 to 20 times your annual salary if you can afford the premiums, which are relatively inexpensive for the coverage you receive. However, this is a generic method, and you might want to use a more reliable method to get an ideal cover amount. There are three methods to calculate the ideal life cover:
• Income Replacement Method - The main principle behind this method is quite simple; your life cover should be sufficient to replace your current income in case of your demise. This value is calculated by multiplying the number of working years you have left and your current annual income.
• Expenses-oriented Method - This method takes into account all the necessary current and future expenses (daily expenses, debts, long-term goals) and subtracts any investments or existing life insurance cover from it. The value derived is the life cover you require.
• Human Life Value (HLV) Method - The HLV method considers a number of variables to calculate the optimal level of term insurance coverage required, including your income, expenses, liabilities, life goals, and more. It is a more accurate way to determine how much coverage you can purchase because it also takes inflation into account.
Using a term insurance calculator, you can calculate the premiums for your desired coverage amount. Continue adding more covers in case your income sees a sudden jump or your liabilities increase. Take out a life insurance policy as soon as you can in your working years because the premiums are inexpensive at a younger age and remain the same for the entire policy term.
