How Term Insurance Protects Growing Families?
by Mashum Mollah Finance Published on: 04 October 2024 Last Updated on: 15 November 2024
The uncertainties are hitting humans left, right, and center! Like the stock market, unpredictability is all that’s reality. Consequently, financial security is a top priority for growing families. As responsibilities increase, so do concerns about the future. Term insurance is vital in ensuring that your family is financially protected, no matter what.
It provides a safety net to help cover major expenses, such as education, home loans, and daily living costs, in case of the policyholder’s untimely death. This is something that’s the reason for anxiety for adults nowadays. Understandably so due to the rising
Let’s learn how term insurance helps you protect your growing family and what you need to consider while buying this policy.
What Is Term Insurance? How Does It Help?
Term insurance is a financial protection you buy for your family to safeguard them from emergencies and the randomness of life’s events. It is far from an investment scheme and should be seen from the perspective of protective funds.
Term insurance gives you a large assured sum for a relatively low premium rate. This reduces your mental burden of keeping your family free from financial burdens. When you sign up for this most straightforward form of life insurance, you ensure the insurance benefits are paid to the beneficiary (anyone you nominate – family/guardian.)
Life insurance gets its name from the agreement between payer and provider, where the term can be anywhere between 10-30 years. In return, the insurance provider’s end of the contract requires them to pay the death benefits.
But there’s a catch to this. The sum isn’t a random, predetermined amount that’s the same for everyone. The insurance provider runs a thorough medical exam to check how much of a risk you are to insure. That’sThat’s off-putting, I know.
They analyze the term, premium rate, and amount through the medical exam and other routine investigations such as lifestyle, occupation, family history, etc. These are some of the crucial factors that determine the costs related to term life insurance.
Tip
If you have children and are wondering about the term length, a general rule of thumb in this aspect is to consider their age. This will help you see how much of their future down the line you want to secure. For instance, if they’re toddlers, you may want to choose a term that sees them through college and out of the house.
How Does Term Insurance Safeguard Growing Families?
A term insurance protects growing families in the following ways:
Supporting Your Family’s Growth
Financial stability becomes a key focus as people usually begin planning their families between 25-30 years. With the addition of children and parents’ retirement, the number of dependents in your family grows.
A backup plan like term insurance ensures your family’s financial future is secure if something happens to you. Plus, it gives you peace of mind knowing they will be protected.
Ensuring Financial Security for Your Family
Life is full of unexpected events, and an untimely passing could leave your family with financial burdens. Getting term insurance early is wise to safeguard your loved ones from such challenges.
It ensures that your family’s financial needs are met, even when you can no longer provide for them.
Return of Premium Option
Generally, term insurance only pays out upon the policyholder’s death and offers no benefit after maturity. However, the ”return of premium” option allows you to repay the premiums you paid if you outlive the policy.
Although this option requires paying a higher premium, it provides the added benefit of getting your money back at the end of the policy term.
Low Chances of Claim Rejection
When you buy term insurance, it is crucial to provide accurate personal details, including financial and health information. Once the policy has been in effect for two years, the Insurance Regulatory and Development Authority of India (IRDAI) prevents insurers from rejecting claims due to non-disclosure of facts.
This ensures that your family is more likely to receive the benefits after two years without any complications.
Affordable Premiums
One of the most appealing aspects of term insurance is the low premium cost. Since the insured amount is not linked to investments, term plans are generally cheaper than other insurance policies.
You could pay 1% of your annual salary to secure a life cover for your family. For instance, a policy of ₹1 crore might only cost ₹7,400 per year.
Securing Your Children’sChildren’s Future
If one or both income earners in a family pass away unexpectedly, children can face financial struggles. A term insurance policy can provide the financial support they need to continue their education and pursue their life goals.
Even if you decide to purchase a policy later in life, it can still be a valuable tool to secure your child’s future.
Tax Savings
Term insurance also offers tax-saving benefits. You can claim up to ₹1.5 lakh deductions on premiums under Section 80C of the Income Tax Act, 1961. Additionally, the death benefit received by your family is exempt from taxes under Section 10(10D).
However, these deductions apply only under the old tax regime. Tax rules can change over time, so it is wise to stay updated.
How to Select the Best Term Insurance for Your Growing Family?
Selecting the proper term insurance for your expanding family requires careful planning. Here are the key factors to consider:
Assess Life Coverage
Estimate how much coverage you need by evaluating your family’s monthly expenses, income, outstanding loans, and future financial goals. A human life value calculator can help determine the ideal coverage amount.
Choose an Appropriate Policy Term
Pick a term that matches your needs. You can choose a specific coverage period or opt for whole life insurance, which covers you up to 99 or 100 years.
Check the Claim Settlement Ratio (CSR)
A high CSR shows an insurer’s reliability in settling claims. You must look for a company with a solid track record to ensure your family’s claims will be honored.
Enhance Coverage with Riders
Many insurers offer add-ons or riders, such as accidental death benefits, critical illness coverage, and premium waivers, which can provide extra protection beyond the base plan.
Evaluate Solvency Ratio
The solvency ratio shows whether your insurance provider has enough financial strength to handle claim payouts in extreme scenarios like natural disasters. This ratio reflects the company’s capability to meet its long-term financial commitments and ensures it can handle future claims.
Look for Additional Benefits
Some plans offer extra perks like life stage benefits, premium breaks, or unique exit options. Make sure to review the policy for these features.
Consider Life Insurance Coverage
In addition to term insurance, consider integrating life insurance into your financial plan. Whole life and endowment policies provide lifelong protection and can be investment tools. These policies can complement your term insurance, offering coverage and investment benefits.
Term insurance offers a reliable way to secure your family’s future. By choosing the right policy, you can protect your loved ones from financial hardships in case of any unfortunate event. Remember the factors mentioned above and find the best option that ensures your growing family’s economic stability and peace of mind.
Wrapping It Up!
That was all about term insurance and how you can pick the one for your family that provides all the necessary benefits. Finding an insurance provider who is transparent and meets your needs (premium rate, amount insured, etc.) is difficult.
But with these tips, you know what to look for in the best term insurance that suits your plans. If you can find the correct term life insurance, it will be smooth sailing to the benefits listed above.
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