Your ability to read and write defines literacy. However, financial literacy is more nuanced. It is subjective and is goal-based. Most people have common goals like being financially independent and having a secure future for their loved ones and themselves. But for many, the initial goal will be something like increasing their income or reducing and paying off all the debt taken up. In any situation, understanding the role of term insurance makes a difference. Term insurance is one such insurance policy that you must purchase for yourself. The policy secures your life against the premium paid. In case of your demise, your loved ones get the coverage amount. It allows you to build wealth and focus on the critical aspects of your financial health while securing your life against a sum that makes it easier for your loved ones to maintain a lifestyle once you are no longer.
Here are some of the roles that term insurance plays:
1. Anchor in dire times: Your term insurance policy acts like an anchor, providing your family with much-needed financial support. It helps you support their lifestyle and other educational needs in your absence.
2. Affordable: A term insurance provides your family with a lump sum amount or a monthly amount. Ignoring all that, the term insurance is an affordable insurance product compared to anything else. The premiums that one pays for a policy of INR 1 Crore can be as low as INR 15,000 per annum. No other insurance policy comes close to this.
3. Can help against debt: A debt can be availed against your term insurance policy. It can help you pay a lesser interest amount or avail a better tenure for repayment. This is how a term insurance policy can help you against a loan.
4. Tax Benefits: The tax benefits are for your beneficiaries. In terms of term insurance, the premiums you pay are already inclusive of tax. So, when your family avails the sum assured after your death, they do not have to pay taxes on the sum assured. Although, there may be some instances where they may need to pay tax.
5. Riders improve your policy: Riders are specific coverages you can add to your term insurance policy. These riders make it easier for you to cover a lot of bases while helping you make your policy better and more rounded. The riders can be accidental policy, death benefits, terminal illness or critical illness benefits, and much more.
Now that we know term insurance plays a crucial role. Here is what your financial strategy should contain:
- A balanced portfolio of equity and debt instruments that maximise returns
- A comprehensive medical insurance policy
- A term insurance policy
- Investments in FDs and some low-risk instruments
- Investment in the National Pension Scheme
- A guide to your financial plan
A mix of these based on income and deliberate action can help you achieve financial security faster. Read and act to capitalise for yourself.