“Do you really need a term insurance plan?”
This is the most asked question when discussing term insurance policies. Most of us are apprehensive about the policy that we think we don’t need. However, how will your family possibly support itself financially if the worst were to happen?
Term insurance plans can keep your family safe from all the financial burdens if something were to happen to you.
Let’s discuss a few important things about term insurance policies.
Deciding the Lock-In Period and How It Is Crucial
When a person purchases a term insurance plan, he is afraid of leaving behind his liabilities to his family. In such a scenario, it is essential to pick the right plan with optimum lock-in period which translates into the optimum coverage period to ensure your family’s safety from financial burden.
But, first, let’s see the type of term insurance plans available:
1. Short-term or pure insurance
In short-term insurance, you get a cover for a certain period ranging from 5to-30 years. It covers death insurance, but no survival benefits are offered in case you outlive the insurance term period.
2. Return of premium insurance
In the return of premium insurance, you get maturity benefit if you outlive the insurance term. It includes survival benefit which is the total of paid premiums during the policy term of 10-30 years.
3. Permanent insurance
It covers the full lifetime of the policyholder and deposits a certain amount in cash-value account. The policyholder gets death benefit and savings component in form of cash-value.
If you are choosing the permanent term insurance plan, then there is no need of deciding the lock-in period. However, if you go for short-term or return of premium insurance plan, then deciding the lock-in period is crucial.
The most efficient way of calculating the lock-in period of term insurance plan is to analyze the age of your youngest child.
For instance, if your youngest child is right now 5-year old, then he or she will be independent or an earning member in maximum next 20 years. So, that should be the lock-in period for your term insurance as once your children are self-sufficient, you won’t have to worry about the financial burden.
Additionally, you also need to consider whether your spouse is a working member of the household or a homemaker. If your spouse is a homemaker, you need to further consider taking permanent insurance to avoid putting liabilities on your non-working partner.
One Major Benefit of Term Insurance
One of the main reasons behind getting a term insurance plan is safeguarding your family from your liabilities. Throughout our lives, we take on liabilities such as buying a new house, car, or any other property on loan. If something happens to you, these liabilities directly shift to your family. And what if your family is not yet capable of paying these liabilities? By purchasing a term insurance plan, you are securing your loved ones from the huge financial burden that they can get into because of your liabilities.
Other Benefits of Term Insurance Plans
1. Cost-effective and low premiums
Term insurance policies usually have low premiums and high pay-outs. No other financial instrument offers such cost-effective plan with a high pay-out option.
2. Tax benefit
If you have a term insurance policy, then you can get tax advantage under section 10(10D), and 80 C of the Income Tax Act, 1961
3. Flexible plan
While cash-value plans only pay when you complete the full tenure, pure term insurance has no cash value element, so your policy ends once you stop paying the premium.
Additionally, you can renew your policy without medical assessment when the previous term ends. You can also convert this term insurance to an endowment plan.
4. Regular investment
Return of premium insurance and permanent term insurance can become a regular investment source with the maturity amount and money saved.
The Final Takeaway
A term insurance policy is an efficient way to save the money which will pay-out your liabilities in case something were to happen to you. If you have a lot of liabilities such as car loan, home loan, etc., then it is suggested to thoroughly research, compare, and buy a term insurance plan from platforms such as Coverfox.com.