Invest in term plan (1)

Buying a Term Plan or Simply Creating Wealth Suffices?

Confused if you should opt for an insurance policy to protect your family or concentrate only on creating wealth? Here is a full analysis of both the options.
Invest in term plan (1)
Most of us are confused between building wealth and buying insurance. However, policies like term insurance plans with a little amount of money can secure your family’s future for a longer term. It offers life cover to your family in your absence. Here are the details of this plan.

What is a Term Plan?

A term plan is a life insurance product, wherein, the policyholder buys a cover to take care of his/ her loved ones in his absence. The amount of cover is called the sum assured, the beneficial member who gets the coverage amount is called the nominee and the amount which the policyholder pays for this cover is called the premium.
This no-frills life cover and it ensures your dependent loved one’s safety, lifestyle and well-being are not jeopardised in your absence.
Many of us think of investments in equities, mutual funds, debt instruments, and the volatile market as an ideal way. It looks like a positive returns coming our way at maturity.
One side of investing in these options is that it creates wealth, but the flip side is market volatility risks, various administrative charges, hidden terms & conditions, and so on. These features make them way more confusing or complicated options to delve in, as your Plan B. Also, the cover that you get in a term plan can be as high as 20 times your annual income!
Hence, it only makes you wiser if you create the right balance between investing in MFs, equities, etc. and in a Term Life plan while planning for your family’s financial future.
Let us look at a typical scenario where a Term plan becomes a blessing in disguise for your family.

Term Insurance as a Blessing

Rajiv is running his own business which is doing well and also owns the apartment (bought against a loan) where he lives in with his homemaker wife and two school children. So he has the responsibility of 3 immediate dependents. God forbid, if on an unfortunate day, Rajiv meets with a fatal accident, his family would be losing not just their loving father and husband, but also their lone breadwinner. Neither his wife nor his children will be able to take care of his business as they would have zilch knowledge about the same. In such times, a term plan is the biggest boon to the family because the children’s education, house expenses and most importantly, the home loan repayment is not disturbed and is taken care of, by the assured amount paid by the insurance company as promised. The family would not have to compromise on any matter, financially.
Imagine, in case Rajiv had not taken up this policy, would his wife been able to take care of her children as quickly as she would, otherwise? Even if there were no home loan to repay, there would definitely come a change in the lifestyle of the family and the quality of education for the children. How far would liquid cash, investments and gold be useful to meet expenses for the rest of their lives? Certainly, she would not want to sell her house because then paying rentals will become an additional major expense.
Having said all of this, however, a Term Plan should always be complementary with something more reassuring like investments in fixed deposits, PPFs, mutual funds and a judicious mix of debt instruments and equities. A term plan is the cheapest way to secure your family’s future when you are not around. The premiums are much lesser for a traditional term plan than those of endowment plans. These will be based on the policy holder’s age, occupation, health status and income. The younger and healthier you are when you buy the scheme, the lower the premiums would be.
For instance, a 30-year-old non-smoker can avail a life cover of 10 lakhs against an annual premium of just Rs. 3000 for 20 years. Such premiums are eligible for tax benefit u/s 80C. Another example, for an annual premium of 20,000 for 30 years, the death benefit is Rs. 2 crores. But for the same amount, under an endowment plan, you would get only 16 lakhs at maturity. So who would not want more for much lesser?
Hence, if I were you, I would chart out a thoughtful financial strategy comprising of safe investments and a term plan to have a foolproof secured future for my family, especially when the premium doesn’t even pinch you one bit!
A term plan is the cheapest way to secure your family’s future when you are not around. With it, you can continue creating wealth while securing your family’s future.

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