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"In case you can not be there to catch them, make sure you leave a safety net, at least." - Anonymous.
Financial planning is one of the most imperative and basic responsibilities of each family breadwinner. Remember, the sudden death of the breadwinner can cause financial turmoil in the economically stable family. Therefore, it is important for family supporters to ensure that their financial plans do not run in harsh times, even when they are not around. This is where life insurance comes to your rescue. Life insurance plans ensure strong financial protection for the family, in the absence of the breadwinner.
Then let's get started! We must?
Q1: I have prepared a financial plan that concentrates on building a huge corpus through savings. Is there any need for financial protection after this?
A1: It's great that you have designed a financial plan focused on creating a huge corpus. However, it is not savings or protection and you will need both to ensure a financially secure life for your loved ones. Your first step should be to purchase sufficient financial protection. This will ensure that your financial plan stays in effect even when you are not around. It is a long-term financial goal to build a corpus. And a protection plan will ensure that the predetermined financial goal is achieved, regardless of the fact that you are not around.
Q2: What do you return at the end of my policy tenure?
A2: It really depends on the life insurance product in which you are investing. For example, the term insurance plan only cater to your financial security and are designed in a way that your dependents are provided with a lump sum in case of your death, during the tenure of the policy. Premiums for long-term plans are quite affordable. By contrast, endowment plans offer both death and expiration benefits. However, the premiums for endowment plans are slightly higher compared to the term insurance plans.
Q3: What is the cost of term insurance? How does it differ from endowment plans that offer returns to maturity?
A3: The cost of the term insurance plan usually depends on the plan you are purchasing. Usually, you can buy a long-term insurance coverage of Rs. 1 crore with a premium ranging from Rs. 6000 and Rs. 8,000, annually. On the other hand, the cost of endowment plans is slightly higher. You can usually buy Rs.1 Crore cover from an annual premium of Rs. 1,00,000 for the term of the 30-year policy. Here it is important to remember that in the endowment policies, the sum secured at maturity is obtained, whereas in the term plans no benefits are paid by maturity.
Q4: How much insurance do I need?
A4: Well, it is a difficult but important question that you should carefully consider when buying life insurance. Remember, the main purpose of life insurance is to ensure financial stability for your family, when you are not around. The amount of coverage should be enough to pay off all fees and generate income to help your family live a decent life. Here is the formula for calculating life insurance coverage:
{% of monthly income (to be covered) - monthly savings X 12 X number of years (your dependents will need financial assistance)}
Let's understand this with an example. Let's assume:
Your monthly income = Rs. 60000% coverage for monthly salary = 80%. Monthly savings = Rs.18000 Estimated years of financial support for dependents = 15 years
[80% of monthly income (60000) = Rs.48000]
[48000 - 18000X12X15 = 5400000]
So you will need Rs.5400000 as your life insurance cover.
Q5: Will there be any changes to the need for my life coverage?
A5: Ideally, it is advised that you keep an acute vigil on your life cover and you should review when you oversee the amplification on expenses, income and responsibilities. As a general rule, each person who has reached the age of 40 needs insurance coverage equivalent to 20-30 times the annual income and anyone who