Most of us are aware of term plans and the importance of being insured, but many aren’t aware of its potential in financial planning. A term plan is a type of insurance policy that provides coverage for a set duration to the policyholder. In the event the policyholder passes away during the period where the policy is valid, a sum assured or death benefit is paid out to the policyholder’s beneficiaries. Term insurance is an excellent and cost-effective solution that offers peace of mind and can also be included as a crucial aspect of a financial plan.
Term plan as part of a financial plan
Financial planning can be defined as the process of achieving financial goals and objectives with the help of appropriate management of your finances. It involves aspects of wealth creation, protection, retirement planning, planning for specific milestones and crucially, planning for emergencies and contingencies.
Where does a term plan fit in financial planning?
Basically, a term plan is a critical element of a robust financial plan. As you grow older, you purchase a home, get married, start a family and plan for your retirement, the more important a term plan becomes. Term plans are still often overlooked and people don’t consider it for themselves until a major life event forces them to consider what would happen to their family and loved ones if the worst was to happen to them. While term plans were designed with the intention of safeguarding oneself from such unexpected circumstances, they can also help you and your family to live a financially secure and well-planned life.
It can be quite confusing trying to understand where we can invest and how we can invest, for example; bonds, stocks, real estate and so on. A term plan is an excellent option as it is quite affordable and more importantly, can be modified to suit the needs at the various stages of an individual’s life.
Why Term Plans?
Lower Premiums – As there is no investment element, the premiums are lower when compared to other insurance policies. An individual generally pays only around 1% of their annual income for getting a life cover.
Financial Security – An unexpected death can wreak havoc on a family and leave them burdened with financial liabilities which fall upon the family members of the deceased. To avoid such a situation, it is vital to invest in term plans that would ensure that all the financial needs of the family are well taken care of.
Flexibility – This is one of the most important benefits provided by term plans. Individuals can choose an online or offline plan as well as being able to customize and adjust the plan as and when they need it.
When should you buy a term plan?
Many experts believe that important life decisions should not be made too early nor too late. However, this is not the case when we consider term plans. It is best to purchase and invest in a term plan when you are young. The quicker you start, the lower the premiums will be for the whole duration of the term
The Bottom Line
It’s critical to invest in a term plan, especially for working individuals and sole earners in a family. The earlier you purchase the insurance policy, the more benefits you can avail from it. Undoubtedly, it is an excellent and crucial addition to all financial plans as well as ensuring a financially secure and peaceful life for you and your family.