You may have heard the term “financial planning” many times, but do you know what it means? Financial planning is setting and achieving your financial goals systematically and efficiently. It involves creating a budget, saving and investing money, managing debts, and protecting assets. Financial planning can help you avoid economic shocks and surprises and prepare you for the future.
One of the most vital phases of financial planning is protecting your assets, especially your human capital. Human capital is the present value of your future income and earnings potential. It enables you to provide for yourself and your family and achieve your financial goals. However, human capital is also vulnerable to various risks, such as death, disability, illness, or unemployment. These risks can reduce or eliminate your income and burden your dependents financially.
That is why you need term life insurance. Term life insurance is an example of life insurance that provides a lump sum amount to your beneficiaries in case of your death during a specified period. Term life insurance can help protect your human capital and secure your family’s financial future. Let’s take a deep dive into some of the key benefits of term life insurance that make it a must-have in your financial planning toolkit.
Term Life Insurance Is Affordable
One of the main advantages of term life insurance is that it is more affordable than other types, such as whole life or endowment policies. This is because term life insurance only covers the risk of death and has no cash value or investment component. You only pay for the protection you need and nothing more.
For example, a 30-year-old non-smoker male may get a term life insurance policy of Rs 1 crore for a tenure of 30 years for a monthly premium of around ₹ 500-600. This is equivalent to about ₹ 15 per day, which is less than the cost of a cup of coffee. On the other hand, a whole life policy of the same amount and tenure would cost him ₹ 1,500 per month, which is more than three times the premium of term life insurance.
Term Life Insurance Is Flexible
Another benefit of term life insurance is that it is flexible and customisable. You can choose the coverage amount, the policy duration, and the frequency of premium payments according to your needs and preferences using the term plan calculator. You can also add riders or additional benefits to your term life insurance policy, such as critical illness cover, accidental death benefit, disability benefit, or income benefit. These riders can enhance your protection and provide extra financial support in case of unforeseen events.
Suppose you buy a critical illness rider; you will get a lump sum amount upon diagnosis of the specified acute illnesses, such as cancer, heart attack, stroke, or kidney failure. This can help you pay for your medical expenses and treatment, reducing your family’s financial stress. Similarly, if you opt for an accidental death benefit, you will get an additional amount over and above the basic sum assured in case of your death due to an accident. This can help your family cope with the sudden loss of income and increased expenses.
Term Life Insurance Is Simple
A third benefit of term life insurance is that it is simple and easy to understand. Term life insurance has no complex features or hidden charges that can confuse or reduce your returns. You only need to pay the premium regularly, and in case of your death during the policy term, your beneficiaries will get the sum assured as a lump sum. Since there is no maturity benefit or surrender value in term life insurance, you do not have to worry about the performance of the policy or the market.
Term life insurance also has a transparent and hassle-free claim process. You can buy this cover online, without any medical tests or paperwork, and get instant approval. You can also compare different term life insurance plans from various insurers and choose the one that suits your needs and budget. Besides this, check the claim settlement ratio and customer reviews of the insurers before buying a term life insurance policy.
Term Life Insurance Is Tax-Efficient
A fourth benefit of a term life insurance plan is that it is tax-efficient. You can get tax perks on the premiums paid and the benefits received from term life insurance under the Income Tax Act 1961. The premiums paid for term life insurance are eligible for deduction under Section 80C up to a limit of ₹ 1.5 lakh per annum. The death benefit from term life insurance, such as the death or critical illness benefit, is tax-exempt under Section 10(10D), subject to certain conditions.
For example, if you pay a premium of ₹ 10,000 per annum for a term life insurance policy of ₹ 50 lakh, you can claim a deduction of ₹ 10,000 from your taxable income under Section 80C. This can reduce your tax liability by ₹ 3,000, assuming you are in the 30% tax bracket. Moreover, if your beneficiaries receive ₹ 50 lakh as the death benefit from your term life insurance policy, they do not have to pay any tax under Section 10(10D).
Conclusion
Term life insurance is a must-have in your financial planning toolkit. It can help safeguard your human capital and ensure your family’s financial well-being. So, don’t wait any longer and buy term life insurance today to secure your family’s financial future even in your absence. It is the best gift you can give yourself and your loved ones.