3 situations that term plans can cover

Term insurance plans have a lot more to offer than they are credited for. They combine the protection element of insurance with the added benefit of investment. In fact, they can be viable investment vehicles as compared to pure investment and/or savings products such as mutual funds, provident fund and fixed deposits. 

The primary objective of a term insurance plan is to ensure your family has the monetary resources they need in case of your unfortunate demise. But it offers much more. One of the most affordable insurance plans is term insurance, which has only death benefit and no maturity benefit but provides a larger cover amount at lesser premium.

Term plans help secure pure protection needed for a set term rather than ensnare an investor into a complex investment.

Here are three scenarios where having a term plan would be the best bet:

1. Loan protection and short-term debt

When making an investment in real estate, a home buyer purchases a loan that has a lock-in period of about 15-20 years. Such an investor needs life insurance to ensure that in the case of his untimely demise, his family isn’t saddled with this financial burden. So investors can opt for a term policy with a death benefit more than the loan amount. 

Likewise, if an investor has taken a loan to start a business, then he/she needs to invest in an insurance plan to help their family manage the business if the person is no more. He/she can cover the risk of an untimely demise before repaying all loans by purchasing term insurance. Similarly, a term plan can help the investor cover for short term loans such as a car loan, student loans, credit card debts, and medical bills.

The term of the policy should definitely cover the loan period, but it doesn’t need to be fixed at that. As a thumb rule, the term length should be equal to the years the investor is going to be a key earning member of the family. So, investors can plan the term based on their financial goals and responsibilities. Also, bear in mind that buying a term plan later in life can attract a higher premium; hence it’s better to begin with a bigger term.

2.  Inheritance cover 

It is prudent to start investing in life insurance as soon as one starts earning. At the start of one’s career, the insurer is low on finances. In such a scenario, term insurance is a better option; especially for sole breadwinners. Plus, buying a term plan early on allows one to avail of low premiums for a longer duration; even up till retirement. 

Term plans also help you create a sufficient inheritance at an early age for your family in case of your sudden demise. No other financial product provides these kinds of returns in such a short term in case of an emergency.

3. Disease/disability cover 

In addition to providing financial security at an affordable price and ensuring that one’s family has comprehensive security, several term plans also guard against uncertainties like critical diseases and disability.

Investors can opt for additional riders or extra coverage that will offer additional benefits under the same term policy. Critical illnesses like cancer, heart attack, etc. that are not covered completely in many health plans, can be secured with riders. If the policyholder meets with complete disability or critical illness, a part or full benefit is paid out as per policy terms. Thus, term insurance provides an option for affordable coverage against uncertainties.

Life insurers like HDFC Life provide affordable online term plans that can be customized as per your needs.