By Qrius
Sushant wanted to provide for his children to the best of his abilities. He had a housing loan in his name and his young children and wife as dependents. He had monthly payouts to build a corpus for his childrens education and wedding expenses. He was not happy with the options he was receiving to secure his familys future. The premiums under those options were out of his budget and he could not afford them. The sum assured under those plans was only 3 times his annual income and that would not be enough financial cover for his wife and children. When he learned about term plans, he was surprised to find an insurance policy providing a high coverage for a very affordable premium.
If we input Sushants details in a term insurance premium calculator, we get the following results:
Sushants age is 35 years. He wanted a policy covering him for 40 years, which means it will cover him till the time he is 75 years. He is a non-smoker. By using this term insurance calculator, he got a monthly premium of Rs.1279 which gave him an insurance cover of Rs.1crore. The term insurance plan Sushant will be able to buy is ICICI Prudentials iProtect plan. This plan has other add-ons for critical illness and accident. The ICICI Pru iProtect Smart plan provides an option to get cover against 34 critical illnesses and pays the claim amount immediately on detection of the critical illness. Sushant thought this provision was very beneficial and opted for this 34 critical illnesses benefit. Getting funds on detection would help him get treatment in the hospital of his choice.
But what is term insurance?
Term insurance is pure insurance. In this type of insurance, the premium covers the risk the company takes to insure the life of the policyholder. There is no saving incorporated in the premium, which is what makes it so affordable.
Why invest in term insurance?
As per the calculations above, Sushant was able to get a life cover of Rs.1crore by paying Rs.1279 per month. In case something happened to him, his dependents would get Rs. 1 crore for their expenses and to take care of any loans. No other form of insurance is as affordable as term insurance. For people looking to secure their familys finances, a term insurance is the perfect plan.
Another benefit of investing in a term insurance is the policy term. Suppose Sushant had purchased some other policy, it would have not covered him till the age of 75 years. He would still have a few years to go till retirement and his wife may probably still be depending on him financially. That policy will not help him, since managing expenses would be difficult. The sum assured under some other policy would not be as high as it is under a term plan as well.
How does term insurance help to take care of your investments?
One understated use for term insurance is that it is a way to protect your investments. Term insurance is usually positioned as a plan that helps you financially secure your family. Term plan not only secures your family but also takes care of your investments. On the death of the policyholder, the amount is received by the dependents. This term policy receipt can be used to:
- Pay off loan instalments or pre-pay the loan
- Continue investment in other financial instruments to build a corpus
When a family loses a breadwinner, it is not only expenses that are impacted, but also investments and liabilities. Having a comprehensive insurance cover can ensure these are not impacted. With the term insurance payouts, any existing investments in other plans or other savings schemes can be continued till their maturity. If regular premiums are not paid under such schemes, it may result in losses. For example, if the policyholder has a SIP to build a corpus for the childs education, it will lapse if the premiums are not paid regularly.
Similarly, when it comes to loans and other liabilities that the policyholder took to buy assets such as a house, or a car, if regular EMIs are not paid, it will lead to actions by lender to get repayment. A term insurance with a high sum assured can ensure that regular EMIs are met for a decided number of years.
Having a term insurance thus acts as an important shield for investments. The payout from a term insurance can help ensure that investments are continued to meet the goals for which they were started.
While planning to buy a term insurance, it is very essential to consider the monthly expenses and investments so that in case of death, the sum assured can cover all the expenses, investments and instalments.
If you have an investment portfolio that you are building up for different life goals, consider buying a term insurance to cover monthly expenses and investment expenses. This will ensure your familys financial security.
L/II/2579/2018-19
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