Term Insurance: Insurance policies are made to offer financial security to the family and dependents of the policyholder in the event of an unfortunate circumstance, such as the policyholder’s demise. Given that numerous Indian households rely on the income of a sole provider to cover their monthly expenditures, an untimely death of the primary earner could have devastating consequences. In such scenarios, insurance policies play a crucial role in offering vital financial support. For these sole breadwinners, term insurance becomes not just a financial planning tool but an indispensable instrument for safeguarding the well-being of their dependents.
In India, families relying solely on the income of one individual face distinct challenges. Apart from meeting immediate living expenses and unexpected medical bills, they must also consider long-term goals such as providing quality education for their children, caring for elderly parents, and funding their children’s weddings, among others. In the absence of an alternative source of income or substantial savings, these aspirations can become difficult.
What are the benefits of term insurance?
Much like a protective shield, term insurance plans serve as a safety net to address potential financial uncertainties in the future. These plans involve the payment of premiums at regular intervals, in return for which the insurer provides a predetermined sum assured to the policyholder. Term insurance plans offer vital financial protection in the event of the policyholder’s untimely demise during the policy term. This coverage ensures that families can weather challenging times without financial concerns, particularly in the unfortunate event of the sole breadwinner’s passing.
In contrast to traditional plans or whole life insurance policies commonly found in India, term insurance typically comes at a more budget-friendly cost as it exclusively provides insurance coverage without any savings component. This enables policyholders to allocate their funds to other investment avenues, such as mutual funds or real estate.
Modern insurance plans have evolved to cater to the nuanced requirements of the Indian market. Presently, term insurance plans offer a wide range of riders, including critical illness coverage and accident benefits. This flexibility allows the sole earning member of a family to customize the policy to address specific concerns and the unique needs of their family.
Optimal term insurance plans
While there’s no one-size-fits-all answer, several key factors can guide you in making an informed decision. A common benchmark often used is to have a coverage amount of 10 to 15 times your annual income. For example, if the primary earner earns Rs 10 lakhs annually, a minimum coverage range of Rs 1 crore to Rs 1.5 crore is advisable. This ensures that, in their absence, the family can maintain their current lifestyle for at least a decade or more.
Additionally, it’s crucial to consider any substantial debts like home loans, car loans, or personal loans. The sum assured should be substantial enough to cover these liabilities, preventing the family from being burdened by debt repayments. Lastly, factor in your family’s future financial needs, which may include children’s higher education, weddings, and the care of elderly family members. A rough estimate of these costs, adjusted for inflation, will provide a clearer picture of the additional coverage required.
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