When it comes to financial planning, we generally think of investing in various instruments to get the maximum return. However, we are missing out on the financial protection of life, i.e. insurance. While wealth growth is essential to achieving life‘s goals, financial protection against unexpected shocks is equally important.
If you are the sole breadwinner, you should definitely consider purchasing a term insurance plan. Term insurance is a contract between the policyholder and the insurance company in which the company pays a specific sum to the family of the policyholder upon the death of the policyholder. This sum is paid in exchange for a premium paid by the insured for a fixed term.
Why term insurance?
Term insurance is the simplest form of life insurance. It provides a financial shield for your family against unfortunate circumstances. Without a term plan, it would be difficult for your dependents to manage household expenses, pay off loans, children’s school fees, etc.
Higher coverage at lower premium: There are a plethora of options where term plans with coverage as high as Rs 1 crore are available at an affordable cost. In addition, the premium can be paid in monthly installments for your convenience.
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Buy early and save amazingly: If you buy a term insurance policy early in your life, the premiums are much lower. In addition, you will pay this fixed amount for the duration of the contract.
Coverage up to age 99: The coverage period for term plans is for life, ie up to 99 years.
Protection against death, illness and disability: These plans provide comprehensive protection against death, critical illness and permanent disability.
Financial protection against loans: In the event of the sudden death of the insured, a term plan makes it possible to repay the debts and obligations of the family.
Added endorsements for full coverage
Insured persons have the possibility of adapting their temporary plan according to their needs. These are known as endorsements which are additions that can be added to the policy to increase benefits. They usually come into effect when the particular event the rider was purchased for occurs. For example, if you add an Income Allowance Rider, your family will receive monthly income for a certain period of time while you are away. This rider is suitable for a policyholder who is the sole income earner in the family.
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You can also add a critical illness rider to your policy. It provides a lump sum payment to the insured if they are diagnosed with a critical illness during the policy period.
The waiver of premium rider ensures payment of future premiums due to loss of income or disability of the policyholder. With this endorsement, the policy will not expire if you are unable to pay the premiums due to a disability or physical impairment.
Decide on temporary coverage
When purchasing a term plan, it is suggested that the sum insured/coverage amount be 10 times your annual salary. You also need to consider other factors such as child’s education, loans, house, car, spouse’s retirement, household expenses, inflation. It’s important to consider your responsibilities when deciding on term plan coverage.
Summary
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 think we are there to run the household, but with the increase in sedentary lifestyles, even the youngest are falling prey to serious illness and death. In addition to suffering the emotional loss of a breadwinner, the family must also bear the financial consequences. A term plan ensures that family members receive much-needed financial support and continue to maintain the same lifestyle in the absence of the breadwinner. Therefore, this should be your first step towards financial planning.
(By Sanjiv Bajaj, Jt. Chairman & MD, Bajaj Capital Ltd)
Disclaimer: This is the personal opinion of the author. Readers are encouraged to consult their financial planner before making any investment.
