If you are planning to buy term insurance, then it will not only help you safeguard your family’s financial future but also help cover your liabilities. The importance of term insurance lies in the basic premise where the insurance company pays the sum assured to your dependents in case of your unfortunate demise. This helps them cover their monthly living costs and take care of future financial goals while repaying any liabilities that you have left behind.
Liabilities are part and parcel of life, and they may crop up with age, increasing financial responsibilities, and lifestyle changes. Without proper strategies in place, these may fall on the shoulders of your loved ones, hindering their ability to financially recover from the impact of your untimely demise in the future. However, you can buy term insurance, ensuring that such a scenario never happens. This article talks about how term insurance can be great coverage for your liabilities down the line. But first, let us take a basic look at term insurance policies and what they entail.
Term Insurance- A Basic Guide
Term insurance is a form of pure life coverage without any maturity benefits. These policies can be purchased for a specific tenure and offer a guaranteed sum assured that is paid to nominees of policyholders in case of their demise within the policy period. This coverage is provided in return for the premium amount that is paid by the policyholder.
Term insurance plans are popular amongst customers since they ensure comparatively higher life coverage for a reasonable premium. You can use a term insurance premium calculator to work out the amount that is payable for your desired coverage amount. Now that you have a basic idea about term insurance, here’s looking at your liabilities and their connection to term insurance.
How Term Insurance Safeguards Your Family from Liabilities
Throughout your professional life, you will make several investments for the future. These will include assets like buying a new home for the family, vehicles for transportation, and also the higher education of siblings and children. For taking care of these life goals, you may avail of loans and debts in the form of credit lines, credit cards, and so on. These obligations can be spread out throughout your working life with timely repayments over a specific duration. Now comes the key connection- in case of your sudden demise, these obligations and repayment duties will have to be borne by your family members and nominees. This will not bring you peace of mind, knowing that in such stressful times, your family has to struggle to meet these debts. In many cases, family members have to sacrifice their personal goals to meet these repayment obligations.
You can buy term insurance to safeguard your family members from any such untoward situation. They can use the sum assured amount (paid by the insurance company in case of your untimely demise within the policy period) to settle your existing liabilities and debts, including personal loans, home loans, car loans, and other credit card or unsecured debt. Hence, term insurance has a direct connection to keeping your nominees safe from your liabilities in case of any unforeseen situation. In this scenario, it should be mentioned that you should always include your existing debts in your coverage calculations. Here’s learning more about it below.
How To Plan Your Term Insurance Coverage Carefully
Now that you know how term insurance plans help your nominees meet your liabilities without any hassles, you should put some effort into calculating your coverage amount. Many recommend a sum that is 10-20 times your yearly salary. However, this may not always be sufficient to meet the needs of your family down the line.
Add the monthly costs of your family and factor in inflation. Then add your liabilities to this figure. You can subsequently add the projected future cost of future goals like the higher education of children and weddings to the amount. This will give you the coverage that you will ideally require. Use a term insurance premium calculator to understand the premium payable for this amount. Try to avoid skimping on the coverage in order to save some money on premiums.
Term insurance is thus a necessary addition to every portfolio. You should buy it as early as possible in order to keep your family financially secure and enable greater peace of mind simultaneously. Another advantage of term insurance is that you can get handsome tax deductions on your premium payments. Up to Rs. 1,50,000 is available as tax deductions under Section 80C. If you add any health-related rider to your term policy, such as critical illness and hospital care, then you can get deductions up to Rs. 25,000 (non-senior citizens) and Rs. 50,000 (senior citizens) under Section 80D on premium payments. Save taxes, secure your family’s financial future, and keep your dependents free from debt obligations. What could be better?