Make Your Term Plan A Comprehensive Financial Shield

Term plans have evolved as a customisable financial tool to hedge against any exigency

Make Your Term Plan A Comprehensive Financial Shield
Anil Kumar Singh is the Chief Actuarial Officer at Aditya Birla Sun Life Insuran
Anil Kumar Singh - 09 February 2021

One of the most important things, you as a responsible individual can do, is to make adequate financial arrangements to ensure protection and stability for you and your family, especially for events unforeseen. It is prudent to be prepared in advance, to help you ride out the storm and carry on without any financial burden.

Term plans are often opted to ensure such weatherability, covering one’s life with a pre-determined sum and tenure. Traditionally, term plans are considered a base policy to provide a safety net for one’s family, in case of sudden demise. But today, the new-age customer can include these plans as part of a comprehensive financial portfolio. Here is how opting for a term plan can offer complete financial protection:

Basic Policy: A term insurance policy can be used as a pure life cover. It provides coverage for a fixed duration by paying regular premiums.

Pocket-Friendly Cover: The prime benefit here is the affordability of premium. A good rule of thumb is to buy term policies as soon as one starts earning regularly to avail considerable coverage for comparatively lower premium rates.

Comprehensive Protection: The most sought-out term policies are those where one has the option to strengthen the coverage by opting for additional benefits. Riders are such add-on coverage benefits that can be availed for specific requirements. For example, taking a critical illness rider with your term policy to protect the family from the financial strain caused by specific illnesses in the future.

Income Tax Benefits: Term policies also offer income tax benefits. There are mainly two kinds of tax exemptions in this case – Section 80C to avail deductions for the regular premium instalments paid and Section 10(10D) to exempt the sum assured amount and bonus paid on maturity or death of policyholder.

Additional Income: In case of an unfortunate incident, the sum assured of the term policy can be received by the surviving family members as lump sum pay-out or as monthly or annual pay-out instalments. This allows the dependants to maintain their current lifestyle and manage living expenses, as well as future financial goals.

It is important to note that in insurance there is no one-size-fits-all model. There is no thumb-rule to buying life insurance and it largely depends on the individual and her family’s financial goal, income profile and risk appetite. The main factors to consider are:

Earning Capability In Future: This is a basic calculation of how many income earning years one envisions in his current career path.

Current Debt: The amount of current debt needs to be factored in too as it represents the possibility of becoming a financial strain on loved ones.

Future Milestones: One needs to calculate for all the basic and desired milestones of life in the foreseeable future e.g. medical expenses of aging parents, children’s education, and life after retirement.

Based on the above parameters, you can compare appropriate policies, especially those that allow hyper-personalisation that serve evolving needs and lifestyles.

DISCLAIMER: Views expressed are the author’s own, and Outlook Money does not necessarily subscribe to them. Outlook Money shall not be responsible for any damage caused to any person/organisation directly or indirectly.