Published on October 27th, 2023 | by Lucy Jones0
Choose the Right Term Plan Based on Your Life Stage
Life is a journey with milestones—education, career, marriage, kids, and retirement. At each life stage, your financial responsibilities evolve. But sometimes, financial responsibilities come without a warning. To prepare for such times, a term insurance plan is your best bet. The purpose of a term plan is to offer financial security to your loved ones. So let’s explore how you can select the right term plan, discussing features and considerations to help you make an informed decision.
Why Term Plans Are Essential?
Do you know the meaning of the term insurance? A term insurance plan is not just a financial product but a well-rounded financial plan. It is a type of life insurance that provides a financial safety net for your family or dependents in the unfortunate event of your demise. Unlike other investment-linked insurance products, term plans focus only on offering life coverage, which makes them affordable and simple to understand. Here are some reasons why term plans should be a part of your financial plan:
1. Financial Security
A life insurance term plan ensures that your family will receive a lump sum amount, known as the ‘sum assured,’ if something were to happen to you. This amount can serve multiple purposes:
- Maintain Lifestyle: The absence of the primary earner can throw a family into financial chaos. The insurance money can help your family maintain their current living standards and cover expenses like rent, utility bills, etc.
- Fund Future Goals: The insurance money can be a financial foundation for your child’s education or your spouse’s entrepreneurial dreams.
2. Debt Clearance
Most families have some form of debt, whether it’s a mortgage, car loan, or personal loan. In your absence, the responsibility for these debts will fall on your family’s shoulders. The insurance money from a term plan can be a lifesaver in such situations. It can be used to:
- Clear Outstanding Loans: The payout can be used to clear any pending debts, ensuring that your family doesn’t have to give up assets like a home or car.
- Settle Other Liabilities: Whether it’s unpaid medical bills or other miscellaneous debts, the payout can help your family start on a clean financial slate.
3. Tax Benefits
One advantage of taking a term plan is its tax benefit. As per Section 80C of the Income Tax Act, the premiums you pay towards your term plan are tax-deductible. Additionally, under Section 10(10D), the payout received by the family is usually tax-free. Here are the benefits you can claim:
- Reduce Taxable Income: You can claim a deduction of up to ₹1.5 lakhs for the premiums paid, effectively reducing your taxable income for the year.
- Tax-Free Payout: Your family gets the complete sum assured without any deductions, ensuring they get the full benefit.
Factors to Consider at Different Life Stages
1. Single and Young
When you’re single and young, you may think it’s early to buy a term plan. You’re just starting your career, and perhaps your primary financial obligations are towards your student loans or a car instalment. However, this is the time when term plans are the cheapest. Insurers are willing to offer you lower premiums because you’re at a lower risk, health-wise.
- Low Premiums: Starting early allows you to lock in a low premium rate, which will continue throughout the policy term.
- Flexibility to Modify the Plan Later: Many policies allow you to add riders or increase the sum assured as you get older, making it a flexible long-term choice.
2. Newly Married
Entering into marriage means sharing your life and also your financial responsibilities. Both partners might be working, but what happens if one of the income streams suddenly stops? That’s where a term plan comes into play. It ensures that the surviving spouse can maintain their lifestyle without financial hiccups.
- Joint-Life Policy Options: These plans offer coverage for you and your spouse under a single policy, sometimes at a discounted rate.
- Coverage Amount Based on Combined Expenses and Loans:Before choosing the coverage amount, it’s best to consider your combined monthly expenses, any outstanding loans, and future financial commitments.
The arrival of a child means joy, but it also means increased financial commitments. From school fees to healthcare, your expenses shoot up, and you need a safety net more than ever.
- Higher Sum Assured: With parenthood, your financial needs include your child’s education and upbringing. That’s why, it’s best to opt for a higher sum assured.
- Riders Like Child Education Benefits: Many insurers offer riders that can be added to the term plan, which specifically covers your child’s education costs in case of your untimely demise.
4. Approaching Retirement
As retirement looms closer, you might feel the need to reassess your term plan. Your children are probably independent, and loans are mostly paid off. However, a term plan is still essential for potential medical expenses and financial security for your spouse or children.
- Payout Options (Lump Sum or Monthly): At this stage, you can opt for a monthly payout to cover day-to-day expenses, especially if you do not need a large sum of money.
- Coverage Until a Reasonable Age: You may also choose a plan that provides coverage until at least 65 or 70 years, ensuring that you’re covered through the initial years of retirement.
Since term insurance plans are so important, choosing the one that best suits your needs can be challenging. You can use this guide at any time to make an informed decision. By considering your unique requirements, you can select a term plan that offers financial security to you and your family at al stages of life.