Financial planning is not just investing for returns; it is also protecting what matters most to you—your family’s future. In today’s uncertain world, one of the best ways of securing your family’s finances is by including term insurance as part of your financial plan.
What is Term Insurance?
Term insurance is a type of life insurance that offers financial security for a specified period of time, called the term. If the life assured passes away during the term, the nominee is paid the death benefit. However, if the life assured survives the policy term, no maturity benefit is paid. This makes it a pure risk cover.
Unlike traditional life insurance products that combine savings and protection, term insurance has a single objective: to provide high coverage at an affordable premium. Hence, it is an inexpensive way of ensuring your family’s future, especially if you are the sole breadwinner.
Why Term Insurance Matters in Financial Planning?
1. Provides Financial Security to Dependents
One of the major functions of financial planning is to ensure that your family remains financially secure in case of your demise. The sum guaranteed under a term insurance policy can be utilised for essential expenses such as:
- Education of children
- Domestic expenditure
- Loan repayment
- Medical expenses
The payout prevents your family from encountering an unforeseen financial crisis during an emotionally tough period.
2. Offers High Coverage at Low Premiums
Term insurance is one of the most affordable insurance policies. Since there is no savings or investment component, the entire premium is used to provide life cover. This means you can opt for a higher sum assured without much strain on your budget.
For example, a non-smoking 30-year-old individual can choose a policy with a cover of ₹1 crore at a comparatively lower annual premium. Because of this affordability, term insurance is an ideal choice for young working individuals, freelancers, and anyone who wishes to protect their family’s financial future at an early age.
3. Enables Long-Term Financial Goals
Adding term insurance to your financial plan aids in safeguarding your long-term goals. These goals may include your child’s higher education, a corpus for your spouse’s retirement, or settlement of long-term loans such as a home loan. In case of your untimely demise, the death benefit from the policy aids in keeping these goals in place. Term insurance ensures that your dreams for your family members are not shattered by tragic incidents.
4. Tax Benefits Under Indian Law
Apart from providing cover, term insurance also offers tax advantages. Premiums paid toward the policy are eligible for tax deductions under Section 80C of the Income Tax Act, up to a limit of ₹1.5 lakh per financial year. Additionally, the death benefit paid under the policy is exempt from tax under Section 10(10D), subject to policy conditions.
While tax benefits should not be the only reason to buy insurance, they do make your overall financial planning more logical and efficient.
5. Rider Flexibility
Most term insurance policies allow enhanced coverage through riders. These extra riders offer protection for the following events:
- Accidental death
- Critical illness
- Permanent disability
- Waiver of premium
By adding suitable riders, you can tailor your policy based on your needs, giving you a more comprehensive financial plan.
When to Purchase Term Insurance?
The best time to purchase term insurance is as soon as possible. Premiums are significantly lower when you are younger and in good health. Starting early will also ensure that you lock in low premium rates throughout the policy tenure.
Also, when your expenses increase, such as getting married, having children, or taking a home loan, the need for financial protection becomes more important than ever. Term insurance ensures that your commitments are fulfilled even if you aren’t around to complete them yourself.
How Much Term Insurance Cover Do You Need?
Financial advisors usually recommend a cover of 10 to 15 times your salary. You also need to consider:
- Current liabilities
- Number of dependents
- Present lifestyle and future expenses
- Inflation-adjusted long-term goals
You can employ a term insurance calculator to arrive at an optimum coverage amount suitable for your needs.
Conclusion
Including term insurance in your financial planning is not merely a wise decision; it is an imperative one. It gives your family a financial cushion, sustains your long-term objectives, and provides tax benefits. Most critically, it ensures peace of mind, knowing your family will be financially secure in your absence.
While financial planning involves different areas like budgeting, investing, and saving, insurance is the foundation of long-term security. Placing term insurance as part of your financial roadmap will be a step toward the proactive safeguarding of your family’s future.
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