In the financial journey of working professionals, ensuring the protection of dependants is of utmost importance. While employer-provided life insurance schemes offer basic coverage, they are often insufficient for complete financial security. This is where term insurance becomes essential. A personal term plan offers pure risk protection, independent of employment status, and ensures that families remain financially secure during uncertain times.
Understanding the role of term insurance and its distinction from traditional saving plans can help professionals build a robust financial foundation.
Understanding term insurance and its necessity
Term insurance is the simplest form of life cover that guarantees a substantial sum assured to the nominee in the event of the policyholder’s demise during the policy tenure. It provides no maturity or survival benefits, focusing solely on offering financial protection.
Unlike saving plans, which combine insurance with wealth accumulation, term insurance exclusively aims at offering a high-value cover at affordable premiums. It is thus considered the purest form of life insurance, ideal for protecting family finances against unforeseen events.
Why relying only on employer-provided cover is risky
Many companies provide life cover as part of their employee benefits package. However, depending exclusively on employer-provided term insurance can expose individuals to serious financial risks.
Limited coverage amount
Employer-provided insurance typically covers two to three times the employee’s annual salary. While this may seem adequate initially, it is rarely enough to cover a family’s long-term expenses, outstanding debts, and future goals such as children’s education or marriage.
Loss of cover during job changes
The cover under an employer’s group insurance plan ceases the moment an employee resigns, retires, or loses employment. This sudden loss of protection can leave dependants vulnerable, especially if securing a new policy becomes difficult later due to age or health issues.
Lack of personalisation
Group term insurance policies do not allow customisation. Employees have limited or no options to enhance their cover or add riders such as critical illness, accidental death, or premium waivers.
In contrast, personal term insurance provides comprehensive and flexible protection, independent of employment status, and thus becomes indispensable for working professionals.
Advantages of buying personal term insurance
Adequate coverage
With personal term insurance, individuals can choose a sum assured that fully meets their family’s needs, including living costs, debt repayments, and major future financial obligations.
Continuity and stability
Personal term insurance policies provide uninterrupted protection throughout the policyholder’s lifetime or chosen policy term, unaffected by employment status or career changes.
Flexibility and rider options
Most insurers offer multiple riders that can be added to a basic term plan, such as critical illness cover, accidental death benefit, and disability income benefit. These additions enhance the scope of protection.
Early purchase advantage
Buying term insurance early in one’s career locks in low premiums. Young and healthy individuals enjoy the benefit of fixed, affordable premiums over the policy term, making it cost-effective.
Tax benefits
Premiums paid towards term insurance qualify for deductions under Section 80C of the Income Tax Act, while the death benefit remains tax-free under Section 10(10D), subject to prevailing laws. These tax advantages make term insurance a strategic complement to traditional saving plans.
Key factors to consider when purchasing term insurance
When selecting the right term insurance, working professionals must consider:
- Correct sum assured: Ideally ten to fifteen times the annual income, considering inflation and future financial responsibilities.
- Policy term: Coverage should last until key milestones such as children’s independence, home loan repayment, or retirement.
- Affordability: The premium must fit comfortably into the financial plan to ensure policy continuity.
- Insurer’s reputation: Choose insurers with a strong claim settlement ratio and good customer service.
- Optional riders: Evaluate and add riders that suit personal health risks and family needs.
Careful planning ensures that the selected term insurance policy fully supports the family’s financial security.
Common mistakes to avoid
Avoid these mistakes when buying term insurance:
- Delaying the decision: Premiums increase with age and deteriorating health. Early purchase is beneficial.
- Underestimating coverage needs: A lower cover can leave families financially exposed.
- Ignoring add-ons: Riders can offer crucial additional protection at a marginal extra cost.
- Failing to disclose medical history: Full disclosure ensures hassle-free claim settlements.
Avoiding these errors ensures that the family truly benefits from the intended protection.
Conclusion: Building financial security with pure protection
For working professionals, investing in personal term insurance is a vital step towards comprehensive financial planning. While saving plans offer wealth accumulation, term insurance guarantees peace of mind by focusing purely on protection.
Relying solely on employer-provided coverage can leave significant gaps. Personal term insurance ensures that families continue to enjoy financial security, irrespective of career changes or market fluctuations. Choosing the right plan today is an act of foresight that secures tomorrow’s stability and comfort.
