The objective of financial planning is to keep funds available or form reserves to accomplish financial objectives or meet contingencies that cannot be surmised. Everyone works hard to secure a better tomorrow and we know that life is a long journey and it is hard to see what lies around the corners. So, what is term insurance? It is an insurance policy that will help you to secure your family for a certain period of time. In the event of your death during the said period, your family would receive the assured amount. Let us find out the importance of term insurance in financial planning.
- Protecting loved ones – A life insurance policy would be a great financial backup for your close ones. You would have to pay a fixed sum of money to the insurer. You would receive a life cover in return. It would be in the form of the death benefit. In case you die prematurely, your family would receive the financial compensation along with additional benefits according to the policy. This is probably the greatest importance of term insurance in your financial planning.
- As an investment avenue and to supplement savings – With the systematic and regular payment of premium, the sum assured would increase. There can be bonuses, loyalty benefits or guaranteed additions during the term of the life insurance policy. Also, it helps to make your investment approach more disciplined. You can put funds in market-linked or conventional life insurance schemes. This would be according to the risk-taking and your ability to pay. The life insurance scheme would become saving plans as it would offer some maturity benefit.
- Manage risks against debts – There is the ability to cover the risk of debts and loans by investing in a life insurance plan. If your term insurance plan has the same policy term as the outstanding loan, the risk of inability to repay would be covered in case of your demise. By doing this, you would ensure that you would not be passing the loans and debts to your loved ones.
- Achieve long term plans – There might be some long term plans like the education of kids and marriage of children. A life insurance cover with an adequate cover would help you maintain long term financial goals. The policies offer the flexibility of fulfilling multiple financial goals if you opt for the right mix of insurance plans. The investment would remain active for a long time and offer a secure and planned financial future.
- Save taxes – A term insurance plan also acts as a means to save tax. The premiums are tax-deductible under section 80C of the Income Tax Act. The proceeds that are received from the life insurance policy are tax-deductible too.
Thus these term plans can go hand-in-hand with your financial planning if you plan well.