Life Insurance, Your Most Important Personal Finance Decision?

According to industry experts, term insurance is the simplest, purest and most convenient form of insurance. It pays the entire sum assured if the policyholder dies during the policy term or term. If the insured survives to the end of the policy term, the insurance coverage ends, and the insurer does not pay anything.

Sajja Praveen Choudhary, Head – Term Insurance, Policybazaar.com, said, “Many factors determine the term insurance premium including your age, sum assured, health risk and length of the plan. Also, the premium you pay when you buy term insurance covers the death rate.”

Mahaveer Chopra, Founder and CEO, Beshak.org said that before you think of buying term insurance, think about who you are buying it for. “Remember, you will not use the money; It is your dependents who will get the money. So, buy term insurance only if you have financial dependents or you have huge debt on your head.”

Also, buying a term plan at an early age will save premium, but there is an opportunity cost of investing that entire money in another fund. Hence, you should buy term insurance only when a financial dependent appears or to protect the loan.

Chopra said term insurance coverage should be the difference between how much you owe and how much you have. How much you owe, this includes loans, financial goals of your dependent family such as child education. The amount you have will include all financial assets that can be liquidated to meet the needs of your family in your absence. For example, you should include your mutual funds or stocks, but probably should not include the house in which they will live.

For example, if you are the sole breadwinner in your household then you need term insurance. Consider what would have happened to your parents, spouse, and children if you had not lived even for a moment. What would they do if everything went wrong? Will they be able to meet their daily expenses with their own resources? Insurance Primarily designed to protect you and your family from an unexpected calamity.

Choudhary said, “A lot of young couples these days start their marriage with a lot of debt, such as student loans. This situation can quickly turn into a disaster if there is only one person left to pay. One Another important situation in which term insurance is needed is when the incomes of the partners differ significantly.By insuring the difference, low-income individuals can easily support their current standard of living, even if higher-income individuals let it die.”

Did not invest enough to fulfill your child’s dream of higher education: Nowadays, the cost of higher education is increasing year by year, and if you fail to plan their studies, they will not graduate from college without debt. So, if you want to partially pay for your child’s private school or college education and take a student loan, you must have a term policy.

Benefits of buying a term policy

Affordable Premium: You get term insurance of high value life insurance at an affordable premium as compared to other life insurance policies. In addition, you can pay the premium in monthly/half-yearly/annual mode. Also, the sooner you buy term insurance, the less premium you will have to pay. Naval Goel, Founder and CEO, PolicyX.com said, “Term insurance is an important policy that helps an average salaried individual to get a substantial corpus amount for his family in the long run at affordable cost of premium prices.”

extra rider

Term insurance plan comes with several riders such as critical illness benefit which covers cancer, kidney failure, heart attack, major surgery, paralysis and other life-threatening ailments which can be very costly to treat.

Incremental Term Insurance: These days, term plans come with increasing cover benefits that allow an individual to increase the sum insured based on real-time personal needs like marriage and children’s education. Otherwise, a person needs to invest in a new term plan to increase his policy coverage.

Sum Assured Payment: Variety of payment flexibilities such as lump sum, monthly, or yearly offered to the insured helps in managing the expenses of the family as they can plan to get the sum assured as per their needs of funds. For example, if an insured has equalized paying monthly installments, or loans, you can easily match the payment of term insurance with the payment of their loans for a smoother payout.

tax benefits

You can get tax savings on the premium paid under Section 80C of the Income Tax Act. Further, the lump sum amount received by the beneficiary nominee as Sum Assured (death benefit) is exempt from taxes under section 10(10D) of the Income Tax Act if the sum assured exceeds 10 times the annual premium.