Adhil Shetty
If you are reading this, chances are that you are on the hunt for an insurance plan before the financial year closes. A life insurance plan helps save taxes under Section 80 C of the Income Tax Act.
Many investors wait for this time of the year to finalise their insurance purchase. But last-minute buying leaves them with little time to stop and think if the product they are buying is the right one for them. After all, insurance products are long-term commitments and should be bought if they help you achieve your long-term financial goals.
If you and your spouse have a young family to look after, you should buy the insurance product that takes care of your loved ones even if you’re not around. It’s still not late to make an informed decision in this matter. In this article, we’ll discuss some thoughts around buying an appropriate life cover for mom, pop and baby.
Pick A Term Plan
For any person with dependents, a term plan should be the life insurance product of choice. Unlike endowment plans, cashback plans, ULIPs etc., a term plan comes with no investment benefit. Its objective is simple: to pay a lump sum upon the insured’s death. Term plans are cheap. A 30-year-old salaried male earning Rs. 500,000 annually can buy a 30-year term plan for annual premiums starting Rs. 7400. This nullifies your need to invest through insurance plans and frees up your funds to pursue more attractive investment avenues such as mutual funds, equity, PPF, etc.
Choose Sum Assured Carefully
A life insurance plan should cover the long-term finances of your dependents. Young parents in their 20s and 30s can expect a working life of three to four decades. In that period, they’ll go through life events such as their child completing higher education, the family buying a home, the child’s marriage, their retirement, etc. In case the family’s primary income provider were to pass away at a young age, their life insurance cover should be large enough to help fund these life events. Therefore, a young family should seek a life cover that would carry them through a long period of, say, 20 to 30 years. A term plan allows you to do this at low premium costs.
Choose A Long Tenure
The tenure of term plans is relative to your age. You can buy a typical term between the ages of 18 and 65, and the maturity of such plans can be at age 75 to 80. Since you’re young and may have a long way to go before making your family financially secure, you should opt for a long tenure—typically something that would cover you till your financial dependents become financially independent. For example, you may have a young child who may be expected to become independent by their mid-20s. You can calculate the time left till their mid-20s and buy a term plan that covers your family for that duration.
Consider A Joint Cover
Let’s say you and your spouse are both gainfully employed and are contributing jointly towards your financial goals. So the sudden demise of one could impede the achievement of your goals—especially any goals you have set for your child’s future. In such a case, you may consider a joint life cover which pays out the sum assured on the demise of either of the two insured lives. The additional benefit here is that a joint life plan’s premiums will be marginally lower than that of individual plans.
Choose The Right Riders
You must pick the right set of riders and add-ons in order to boost your life coverage. The riders you pick must be relevant to your needs. For example, if your spouse is not gainfully employed, you may want to add a monthly income rider to supplement the basic sum assured, and the rider would pay a monthly income to your nominees for a fixed duration.
Buying life insurance is a decision that needs to be taken after carefully evaluating the product’s features, terms and conditions, costs and benefits. This becomes doubly important for you as a person with dependents. When in doubt, go online to compare products thoroughly before deciding to buy the insurance plan best suited to you.
The writer is CEO of BankBazaar.com
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