Why term insurance should top financial to-do list

Insurance is an essential tool to keep you and your family financially secure amid unforeseen distress. Insurance cannot be considered a financial product, but adding term insurance to one’s financial plan can help one in a crisis. It helps legal heirs of an insured person, upon his or her demise, to get fixed income, receive a sum invested, or to claim insurance.

Sanjay Tiwari, chief strategy officer, Exide Life Insurance, said, “A diverse investment portfolio enables people to invest in a systematic and disciplined manner. Insurance, on the other hand, is a product that ensures financial guarantees even in the absence of the policyholder.”

When one has insurance in one’s kitty, there is an intangible promise of assurance.

Sushil Jain, chief executive officer, PersonalCFO.in, said, “If you don’t have adequate insurance cover, your financial plan is always on a stack of uncertainty.”

Benefit of having term insurance: The sum insured is usually a huge multiple of the premium that one pays. If one were to invest that premium amount instead, it would take many years to reach the typical sum insured offered by these policies. By purchasing term insurance and paying regular premiums, one protects oneself from unexpected financial needs from day one.

If you are a breadwinner, you must avail term-life insurance. A term insurance policy also helps save taxes as the premium paid, profits earned and the coverage an insured receives are typically tax-free under different sections of the Income Tax Act such as 80C and 10(10)D. Thus, insurance makes your income received from the insurance company entirely tax-free and helps get a wholesome amount of money.

Points to consider: Other life insurance policies, such as unit-linked insurance plans (Ulips) and endowment policies, have a savings element. On survival, these policies pay survival benefit and a death benefit in case of death during the policy term. Pure term insurance policies, though, have no saving element. These policies only benefit the nominee in case of the insured’s death, and hence, there is no maturity value if the insured survives.

This way, most of us consider buying life insurance policies that offer guaranteed benefits and overlook term insurance. However, experts suggest that when you buy life insurance, term insurance should be given priority. Moreover, if you need life insurance, you should consult your financial adviser and buy other savings policies only after taking term insurance with an adequate sum assured.

Srinath Mukherji, co-founder and director, Sana Insurance Brokers, said, “Insurance products for families and individuals are typically of two types—pure-risk and savings-linked. Pure-risk policies typically pay claims for contingency events, while savings-linked policies also pay you back after a period. Opinions might differ about having savings-linked policies in your portfolio, but pure-risk policies, such as term life insurance, are an absolute must.”

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