When it comes to investments, we often look for financial instruments which could enhance our income. Mutual funds, stocks, fixed deposits and life insurance policies are a few which are generally considered. However, imagine a situation,death of an earning individual who has dependents. Life will to a standstill with the loss of a bread winner and this could result in a serious financial instability unless your family has a huge inheritance coming their way. Term insurance plans are the best solution especially for such situations. It not only safeguards your dependents after your demise but also provides them with adequate financial support in case you are diagnosed with a critical illness and end up losing your constant source of income.
Investment in term insurance plans should be made considering importantfactors mentioned below.
Dependents: Consider how much time your dependents would need before they can become financially independent This does not necessarily mean the time of your retirement, but the time till which they would still be dependent on your source of income. This is a crucial point that will go in evaluation of term plan duration.
Liabilities:When you have liabilities of a home loan or any other financial liability, an investment plan can fail if you do not have a term insurance plan. For instance, due to an unfortunate event leading to your permanent disability or death, these liabilities fall on the family. The term insurance plan should be selected for an appropriate amount so that it nullifies or supports any additional financial liability that you have on yourself.
Education:while we plan for a family, we constantly look for various investment schemes and modes to have that constant flow of money meeting the family requirements. Education for the children is one of the prime factors to be considered. With the increasing expenses, educational costs are skyrocketing. Though your investment plans using various other investment instruments can do the job, a term insurance plan along with other investments comes in much handy in your absence.
Living Expenses: With inflation on the heavier side, and increasing cost of living, usual insurance plans fail unless you have a term insurance plan which can support you and your family in the time of crisis. Various riders available along with term insurance plans like accidental death rider, critical illness rider, permanent or partial disability rider, waiver of premium rider would provide adequate support to the policy holder and his or her dependents during any unforeseen situations not limited to death. Though other investment sources can get you the flow of funds at the time of crisis, in any case of critical illness, the lifestyle and living expenses of the family changes considerably. Having a term insurance plan that can support you with the medical and non-medical expenses required for the illness while the other investment returns take care of the living expenses, the financial burden on the family is reduced to a great extent.
For families where both parents earn, term insurance plans should be bought considering the overall income of the family and the liability that would befall on the dependents in case of loss of any one of the earners.
Term insurance plans not only help you diversify your investments and provide financial support in times of need, but they also help you in saving your taxes. In India, under Section 80C and Section 80D of the Income Tax Act of 1961, one can avail up to INR 1.5 lakhs from the taxable income on the premium paid for the term insurance.
As they say, do not put all your eggs in one basket, it is crucial for an investor to not just look for means which could increase his regular income but also foresee the situation when the main source of income is cut off due to any unfortunate event; during which plans like term insurance can save the day!
