The Importance of Term Insurance in Your Financial Planning
Many people worry about the future financial safety of their loved ones. That is where term insurance becomes useful. It provides monetary support to the family in case of the untimely demise of the life insured. It offers high-life coverage for reasonable premiums. A term insurance plan is a safeguard through which your family can maintain their lifestyle even in your absence. Including term insurance in your financial planning brings you peace of mind and strengthens the stability of your long-term goals.
What is Term Insurance?
When it comes to buying an insurance plan, people often get confused between term insurance vs life insurance. The fundamental difference between these two is the policy tenure. Term insurance is a type of insurance that provides a death benefit to your loved ones for a specific period, called the “term.” The term generally ranges from 5 to 35 years. In case of the untimely death of the life insured during the policy term, a fixed amount is paid to the nominee. This amount can be used to manage day-to-day expenses, repay debts, or fund your child’s education.
However, if the life insured outlives the term, no payment is made under regular term insurance. Here, one can also opt for term insurance with a return of premium option. It provides a payout even if the life insured outlives the policy term.
Key Benefits of Term Insurance in Financial Planning:
Term insurance is seen to have a number of benefits that render it a highly feasible option for financial security. A few of the major advantages are discussed in detail below:
- High Coverage for Low Premium: Term insurance allows you to avail of a huge life cover at a minimal premium. You can pay for your child’s education, instalment of loans, or even utility bills.
- Pure Protection against Risks: Term plans are created purely for protection and offer a payout when the life insured dies during the term. It gives you peace of mind knowing your family has financial support even when you are no longer around.
- Customisation: Term plans can be customised to meet your needs through riders, like a critical illness rider, waiver of premium, or an accidental death rider.
- Tax Benefits: Term Insurance gives tax benefits that are advantageous for your long-term financial planning. The premiums paid are eligible for deductions under Section 80C (only under the old tax regime) up to ₹1.5 lakh in a fiscal year. This reduces your taxable income, which helps you save more every year. This money can be used for other financial goals, like a child’s education planning, payment of debts, etc. Additionally, the death benefit received is tax-free under Section 10(10D) of the Income Tax Act, which is available in both tax regimes.
Why Prioritising Term Insurance Makes Sense?
Term insurance is often advocated by financial experts as a prioritised approach to life insurance because of the amount of coverage provided at a competitive price. Term insurance provides a financial cushion that helps your family cover daily expenses. Term insurance is a simple concept that makes it easy to understand and manage.
It does not involve the investment component or depend on the fluctuation of the market. This simple approach helps you focus on the financial security of your loved ones without getting confused by complicated terms.
When to Buy a Term Insurance Plan?
The ideal time to purchase a term insurance policy is as early as possible. Buying a policy when you are still young not only helps you acquire lower premiums but also gives you access to a wider range of life insurance plans tailored to your needs. As you age, the likelihood of developing health issues increases, which is considered a risk factor by insurers. This can lead to higher premiums or even denial of coverage. With early planning, you can secure a better rate, choose from more suitable life insurance plans, and enjoy uninterrupted protection for a long period of time.
Term insurance becomes important, especially if you:
- Have dependents, like a spouse, children, or ageing parents.
- They are the only earners of the family.
- Have financial liabilities, like loans.
- Want to secure your family’s dreams, like your child’s higher education or marriage.
Purchasing term insurance early means you will have the peace of mind of knowing your family has financial security, even when you are not around.
How to Choose the Right Term Insurance Plan?
As there are a number of options in the market, choosing the term insurance that is ideal for you can become challenging. Below are some of the most important things to keep in mind while purchasing a term insurance plan:
- Determine the right coverage amount: Before deciding on a coverage amount, think about your current expenses, future goals, and any outstanding loans. Ideally, your insurance coverage should be 10-15 times your annual income.
- Choose an adequate policy term: Make sure your policy term is still all your financial obligations, like loan repayment.
- Check the Claim Settlement Ratio: The greater the claim settlement ratio, the more reliable the insurer. For instance, trusted insurers like Axis Max Life Insurance have a Claim Settlement Ratio of 99.70%, showing their reliability in honouring claims.
- Check for riders: Based on your needs and risk profile, opt for riders, like a critical illness rider or an accidental death rider, to enhance your policy coverage.
Conclusion
Choosing a term insurance plan for financial planning is the most responsible decision you can make. It gives you high coverage at a low cost, and your family is left with financial security even after your death. With numerous benefits such as high coverage, protection against risk, and the facility of adding riders, term insurance is the perfect choice in financial planning. Compared to other market-linked plans, it is simple and clear to understand and a safe choice for pure protection seekers.
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