FINANCE TIP OF THE DAY
Can you afford your loan?!
Know the quantity of loan you can afford. The banks may sanction loan based on your income but you should look at your monthly expenditure and see if you can afford the maximum that banks offer. As a thumb rule, remember not to let your credit exceed 40% of your income!
Why take a term plan?
Usually a family comprises of a person who works and earns money for the family and also people who are dependent on him/her. They may not have any means of earning money and it is the responsibility of the breadwinner to secure his family in the case of any unforeseen tragedy or his untimely demise. Life insurance comes as a respite to provide maximum protection to them. There are various life insurance products available in the market and term plan is one of them. Term plans are also called as term assurance and they provide coverage of life only for a short and specific duration till the premium amount is paid. If the insured dies due to any reason during this tenure, the death coverage is offered to the beneficiaries.
Most of the term plans have their premium rates fixed and are based on the age of the insured and health factors as well as other factors like gender, vices like smoking or alcohol. If the tenure of the policy completes, then it lapses and no benefits are provided to the insured. It can also be bought online which can help in saving time and money on premiums.
Why choose a Term Plan?
Term plans usually give maximum coverage for the lowest premium amount. Term plans can be used effectively if their benefits are understood well and they are used based on the requirement and circumstances. Some significant ways of using term plans sensibly are:
- Term plans should be chosen in such a way that the term cover can be increased, decreased or stopped based on the situation. It is recommended to opt for term plans without return of premium as that is the most economical option. It would be ideal to buy new term plans with different critical stages of life like marriage, birth of a child so that family members are included in the coverage. It can be bought for a maximum duration of 30 years or till the age of 65. It is better to opt for term plans when still young as the premium is much lower then. However, the duration and coverage should be reviewed often with the income increasing with age and experience and also accumulation of funds and assets. It can be further revised with the build up of assets and lesser liabilities like children working and settling.
- The term plan can also be used to take care of the home loan in case there is sudden death of the insured. Usually the home loan repayment is done by the insured and it lasts for most of the working life. In case of a death, then the family members will have to take care of the repayment of the home loan or lose possession of the home. In such a case, term plans help as they are of low-cost and a high coverage and can take care of the rest of the home loan.
- Term plans can also be used for taking care of shorter-term loans. Short-term term plans can be used effectively to manage loans like car loans or purchase of business equipment. The term plans can be stopped as soon as the tenure of the short-term loans gets over.
Buying a Term Plan
A prospective policyholder can buy a term plan from insurance companies, agents or even online. A comparative analysis should be done before choosing one which is most suitable for the policyholder based on his age, gender and other related factors. Most of the insurance companies provide information on their company websites. Information can also be collected from authorized agents.
A comparative chart of products with their premium amount is given below. It is specific for term plans of Rs. 50L at the age of 25 years.
|Product Name||Tenure Year||Premium (Rs)|
Hence, term plan is suitable for those who do not want to merge their investment objectives with risk objectives. If the policyholder is fine during the tenure of the policy, no money is given to him or his family members. However, in case of a death, the family members can get the sum assured. Though the premium is quite low for high coverage, it can be increased or decreased at the end of each term. It covers not only the policy holder but his family members as well in case of any unforeseen tragedy.