Put a money value on your life and protect your family

All of us plan for the future by choosing various savings instruments such as fixed deposits, mutual funds, postal schemes and so on. We do this because we have aspirations and financial goals that could vary — from buying a home or a vehicle, to marriage, to children’s education, and other milestones. The fundamental premise on which all our plans for the future are based is that we will be around to see the plan to fruition.

What if? Life, as we know, is unpredictable and the entire equation can change in the blink of an eye. What if events turn out in such a way that you are no longer around to take care of your family’s needs and well-being? This would mean not only that the family would be deprived of the regular income you bring, but that the savings plan for future goals too would be adversely affected.

The loss of a loved one results in emotional pain to the family. Additional complications arise if the person was the family’s bread-winner. This means that the family is left without a source of regular income. There is no product or service in the world that can help a family tide over the emotional grief caused by the loss of the earning member. A well-thought-out financial plan takes this aspect into account.

To make up for the loss of the regular income that stares the family in the face, term life insurance plans are the answer. These plans pay out a lumpsum amount, which can enable the family members to continue with their lives without too much of interruption.

Importantly, the lumpsum payout can be used to continue with the regular savings plans that were initiated to meet future financial goals. Term insurance plans, in a way, not only provide a safety net for the future of the family, but also act as an income replacement tool.

Simplicity of term plans Term insurance plans are easy to understand and are cost-effective life insurance products. We pay a premium and in turn get a life cover. The life cover continues till the premiums towards the policy are paid.

When we purchase a new vehicle, which costs, say, ₹10 lakh, the first thing we do is to buy adequate insurance. For this, we pay a premium of ₹25,000 to ₹30,000 per annum. A term insurance plan, on the other hand, can be purchased for as little as ₹8,000 to ₹10,000 per annum for a life cover of ₹1 crore (premium as calculated for a 30-year non-smoking male).

If we are willing to pay a hefty premium for the safety of our cars, we definitely should purchase a term insurance plan for ourselves. Not only is it cost-effective, it safeguards the most valuable asset we possess: our lives and the future of our loved ones.

How big a cover? How much life cover should you purchase? This is one of the most commonly asked questions. Every earning individual should take into account three factors before buying a term plan.

Base Life Cover: As a thumb rule, earning individuals up to age 40 should have a life cover equivalent to 20-30 times the annual income; in the 40s, the life cover should be about 10-20 times annual income; and in the 50s, the life cover should be 5-10 times the annual income. The term life cover should ideally continue till retirement age.

Outstanding loans: Any loans or financial liabilities should ideally be added to the base life cover while buying a term plan. This will insulate the family from having to pay off the loans in the event of early demise of the breadwinner.

Critical illness benefit: This is an important feature as our lifestyle makes us vulnerable to critical illnesses. An earning individual with dependants should consider buying a term plan with built-in critical illness benefits; these plans pay out a lumpsum if you are diagnosed with any one of the critical illnesses covered under the policy.

When an individual applies for a life insurance policy, the life insurer seeks out information from you. Customers should truthfully declare all information requested for, especially lifestyle habits, individual and family health history and so on.

The life insurer may require an individual to undergo medical tests to evaluate their health. This enables the life insurance company to assess the right amount of life cover that can be offered to the customer.

Furnishing incorrect information or withholding information from the life insurer could result in the claim being denied, which defeats the purpose for which the insurance policy was purchased.

Providing all information honestly ensures that the life insurance company can provide a smooth claims settlement experience to the family of the policyholder.

In summary, a term insurance plan protects the future goals of the family and insulates them from any financial shock. For the breadwinner of the family, it gives a priceless gift: peace of mind.

The author is Executive Director, ICICI Prudential Life Insurance

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