The Intersection of Term Insurance and Wealth Management

Term Insurance

Term insurance is basically a type of life insurance that offers coverage to the family of the life assured. With these plans, the insurer covers the assured for the entire policy term, and during that term in case of an eventuality covered under the plan, the insurer will payout the applicable benefit amount to the nominee.

Term insurance is usually considered a risk management tool, but it can also help individuals manage their wealth in the following ways.

How Term insurance can help with wealth management?

Here is how term insurance can help you manage your wealth in the long run:

  • Financial security for family: Term insurance is a pure risk protection plan that offers financial aid to your family in case of your untimely death. Your family can use the benefit amount to pay for the child’s school fees, rent, medical bills, and other monthly expenses in your absence.
  • Pay off remaining loans: In case you have any existing loans and debts that are yet to be paid off, your family might be burdened with having to repay them in your absence. The payout from Term plans can help them take care of these loans in case of your unfortunate demise.
  • Tax free benefits: A term insurance offers tax free benefits to your family incase of your untimely death. You can claim term insurance tax benefits as per the prevailing tax laws u/s 80C and 10(10D) of the Income Tax Act, 1961.
  • Plan for Retirement: You can protect yours and your spouse’s retirement with a term plan. These plans can help your spouse and other family members stay financially secure in the event of your untimely demise.
  • Save more, invest more: Since the premiums of term plans are so low, it saves a huge chunk of your budget to invest in other savings and investment options that can help you build your overall wealth in the long run.

What are some factors to keep in mind when buying term insurance plans in India?

Let’s take a look at some of the points you need to keep in mind when buying term insurance:

  • Choosing the right cover: You need to assess your and your family’s financial needs and take inflation into consideration when choosing the right term insurance cover amount.
  • Add relevant riders: Several insurers offer various riders that you can add to the base plan to enhance their cover. With these riders you can get comprehensive cover against critical and terminal illnesses, accidental deaths and disabilities, and more.
  • Whole life cover: Various term insurance plans allow you to get covered under the plan for your whole life i.e., till 99/100 years of age. This ensures that your family receives a guaranteed tax free benefit in your absence.
  • Life stage benefits: You might purchase a policy today when you are single and have less dependents, but later in life your dependents may increase and require a large coverage amount. With the life stage benefit, you can enhance the cover amount at different milestones like marriage, childbirth, and home loan.
  • Consult financial advisor: Before buying a term insurance, you should always consult a financial advisor to help you devise a wealth management plan that best suits your requirements. They can also help you understand the details of the term plan to avoid any future confusion.
  • Term insurance in business: The payout from a term insurance can help recover the losses faced by the business in your absence.
  • Regular Review and updates: You need to regularly review and update your term insurance policy to ensure that the cover is aligned with your evolving needs and changing financial circumstances.

Final Thoughts

While a term insurance is traditionally considered a pure risk protection plan that is usually used for risk management, you can leverage the plan’s benefits to help you mitigate financial risks faced in Welsh management as well. However, it is recommended that you consult your financial advisor for a more comprehensive look on the term insurance and it’s impact on your wealth management.

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