A term insurance plan is akin to the home page of one’s financial plan. Purchasing a term insurance plan marks the beginning of any financial road-map while the investing part comes later. Having life insurance preferably through a term insurance plan makes navigating the life stages and meeting life goals much easier and under control. Therefore, buying a term insurance plan is often regarded as the first step in the financial planning process.
One of the major risks of life is the risk of dying early. This risk is best mitigated through life insurance, in which a term insurance plan being a low-cost, high-cover plan makes it the right choice. To keep things simple, let us look at the basics first.
Term insurance is a type of life insurance policy that provides coverage for a specified period subject to the condition that the policyholder keeps paying the premium. It only covers death during the period of insurance and there is no element of savings in it. On death during the term of the policy, the family members or the nominees get the coverage amount (called sum assured in insurance), while on surviving the term of the policy, there is no maturity value payable to the person whose life is insured.
Compared to all other forms of insurance, premium (the cost of insurance) is the lowest in term plans. Typically, in a term insurance plan, premium is low for those who are young compared to those who are not so young, keeping the period of coverage constant.
Going by the death benefits of a term insurance plan, it makes it a pure risk cover plan. It ensures that the family gets the desired amount of money to not only maintain the standard of living but also to ensure that the financial goals such as children’s needs, home buying etc are met as and when they arise in life.
But, what makes a term insurance plan occupy such a special place in one’s money matters? The answer is – Risk Management. For meeting long-term goals, one invests in various asset classes such as equities and debts, based on one’s risk profile. However, all such investments such as PPF, mutual funds and other investments are self-funded in nature. The investor needs to be alive to keep investing in them.
Having a term insurance in the scheme of things ensures one’s long-term goals are not derailed. The proceeds from a term insurance policy can be deployed by the surviving family members to make sure the family goals do not run the risk of being unfulfilled.
Now, as it is clear as to how important it is to own a term insurance policy, let us see who should buy them. Practically everyone needs a term insurance plan i.e. anyone who has financially dependent people should opt for a term insurance plan. Whether one is still a student with financially dependant parents or one is married with kids, or grown up children, when there are life goals yet to be accomplished, a term insurance plan becomes a must-have in the blue-print of one’s financial plan.
With adequate coverage through a term insurance plan, one is able to face the life goals more comfortably and with complete peace of mind. Once term insurance is made the starting point of financial planning, taking steps towards other family goals becomes less worrisome than ever before!
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This article was originally posted here
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