In many ways, a term plan is similar to the home page of one’s financial plan. Buying a term insurance plan is the starting point of any financial plan, the investment part comes later. Life insurance in the form of a term plan allows us to manage life’s milestones and makes achieving life goals easier and manageable. As a result, purchasing a term insurance plan is considered to be the first step in the financial planning process.
One of the key risks in life is the risk of passing away suddenly or early. This is easily managed using a life insurance policy. A term plan, for example, is a low-cost, high coverage plan that is often considered to be the simplest and easiest form of life insurance we can buy.
Term insurance is a kind of life insurance policy that provides coverage for a fixed period and remains valid as long as the policyholder pays the monthly premiums. It only provides death coverage for the duration the policy is active and it has no savings element in it. If death occurs while the policy is active, the family members or the nominees receive the sum assured. If the policyholder outlives the term of the policy, there is no maturity payout to the policyholder.
When compared with other types of life insurance, the premium amount for term plans is the lowest. Generally, in a term insurance plan, premiums are lower for younger people and increases as the age of the policyholder increases assuming that the duration of the policy is the same.
If we consider solely the benefits of a term insurance plan, it can be considered to be a pure risk cover plan. It ensures that our loved ones receive the sum assured to not only maintain their current lifestyle but also, to ensure that financial obligations, future or present, are met such as children’s education, buying a home, paying off debt are met as and when they occur in life.
What makes a term insurance plan crucial for financial planning?
In short, risk management. To achieve long-term goals, we invest in various assets like equities and debts, according to our risk profile. However, such investments like a PPF, mutual fund and other investments are usually self-funded, meaning the investor needs to be alive to keep investing in them.
A term insurance plan ensures that our long-term goals are aligned with our finances. The proceeds from a term plan can be used by the surviving family members to ensure that your financial goals do not run the risk of becoming nullified.
Who should purchase a Term Plan?
Practically and logically, everyone needs a term insurance plan. Anyone that has relatives or loved ones that are financially dependent on them should definitely consider opting for a term insurance plan. Whether you are a student with financially dependent parents or if you are married with children, or even if the children are now adults – if there are still life goals that have not been achieved yet, then purchasing a term plan becomes a crucial aspect of the blueprint of a financial plan.
Through the adequate coverage provided by a term insurance plan, you can easily achieve your life goals. It allows you to be free from the burden of how your loved ones would manage financially without you. It provides comfort and peace of mind. Once term insurance is purchased and included as the starting point of any financial plan, it becomes easier to take steps towards other life and family goals without worrying about financial ruin or lack of funds for your family.