When you are young, ‘what if I die’ would be the last thought that would cross your mind as you generally think you won’t have to deal with death at least for the next 40 years. Well, but there is not even an iota of righteousness in thinking that nothing would ever happen to you as life is uncertain and so is the timing of your death. Also, as time passes off, you begin to shoulder more responsibilities and develop a sense of worry as to how will your family function if tomorrow you die? And this is when the idea of having a back-up plan pops us.
Though you can’t have a back-up plan to take care of your family’s emotional health, but you can certainly have a financial cover become the core of your plan which can be utilized to waive off your loans and also take care of other financial needs. And while talking about financial stability for our family, one plan that has gained prominence is a term life insurance plan.
A term life insurance policy is a life insurance tool that provides financial protection to your family for a specific period of time. A term insurance plan is a no frills product that ensures higher sum assured at low premium rates.
Note: If you outlive the policy, you need to forgo the premium paid, which means your family is not liable to receive the sum assured.
Term life policy is simple to understand and easy to purchase if you very well understand the benefits that this life insurance product has to offer.
So here are a few benefits listed below:
1. In a term insurance plan, the sum assured is high and the premium amount is low. Also, the premium amount does not change under any circumstances.
2. The premium paid is also exempted from taxation up to a maximum of 1.5 lakh under section 80C of the Income Tax Act, 1961.
3. A term plan can be bought with additional riders such as waiver of premium rider, permanent disability rider, critical illness rider, accidental death benefit rider, women critical illness rider and accidental death benefit rider.
4. Policy term can be for a term of 5 years up to 60 years.
5. The minimum age to buy a term insurance plan is 18 years and the maximum age limit is 65 years.
6. One can avail coverage from 25 lakh up to 5 crore and above.
Short term-long term?
Now the duration of your term plan plays a vital role in deciding the worth of your policy as life is certainly unpredictable and you would not really like to spend your money in the form of premium if you are not going to fetch anything for your family at any later stage.
Also, considering how unpredictable life is, you never know when a tragedy can strike in. Hence, deciding the tenure of your term plan solely depends on you and your finances. But the following factors listed below will surely help you take a better decision.
Your financial commitments: First thing that you need to do is list down your financial commitments. From covering the cost of your child’s education to his marriage to your loans, just gauge the time frame from when you will be required to make ends meet for these occasions. Ex: If you are 45 now, then in the next 10-15 years, your kids would have completed their education or would have got married. Also, if you know that your home loan is going to be paid off in the next 10 years, then you might as well not buy a term insurance policy for 20 years (at the age of 45).
Who will pay the premium after your retirement? Ideally a term of a term insurance plan should be equal to the number of years your family will be dependent on you because if you retire at the age of 58-60 then there is no income to be covered. Also, if you do not have any pension plans, savings or what if your children aren’t supporting, then who will pay your premium?
Term insurance to cover loans: Generally, loans are issued to salaried individuals, so if you retire at the age of 60, then there is no question of EMI as the maximum period of the loan is capped by the retirement age. Hence, if you retire at the age of 58-60, then all your loans would have been settled by then.
You don’t need term insurance beyond your work life: Simply put, you buy a term insurance plan because you don’t have enough net worth to secure your family’s financial future and also because your family is financially dependent on you. But a person who is not earning and contributing to the family’s income won’t cause any harm financially. So, logically it’s wise to buy a term insurance for a term only as long as you are earning and others are finally dependent on you.
Avoid short term investment: People try to save the premium by opting for short term plans. However, this is not a wise decision to make as on the renewal of a policy the premium rates will increase depending on your present health condition and income. For example: If you are a male aged 25 years (having an income of 3-5 lakhs per year) and you opt for a term plan for 10 years, then your yearly premium would be around 4,000-6,000 per month. But if you buy the same term plan at the age of 35, then the premium can cost you around 10,000. Hence, short term plans should be avoided as premiums would be high and the coverage won’t be of any use when you actually need it for your child’s education, loans and other financial emergencies.
You can buy a term plan at the age of 59-60 too: Surely at the age of 59 insurance companies will let you buy a term plan for a few years, but the premium charged at this age will be higher. However, your costs will further increase if you have any serious medical condition. Also, you should think about the term of the policy as generally by the age of 65 your responsibility of getting your children educated and married would be over. So think logically as availing a longer term plan would not make any sense unless you have mounting debts or liability.
How much can you afford? At any stage, though you think a term plan can be the best insurance product for you. But the important question is how much can you afford to pay? Will premiums be easy for you to pay off? Also, if you don’t pay premium on time, then your policy can lapse. So always opt for a plan that you can pay for.
Hence, buying a term insurance policy is arguably the most beneficial and confusing decision you will make. So by planning well, opt for a short or long term plan as per your budget and requirement.
Stories by Shubhi Gupta