Term Life Insurance : The Foundation Of Your Financial Planning

Financial illiteracy among the Indian population has become a growing concern. According to an NCFE Financial Literacy and Inclusion Survey, an astounding 73% of the population is financially less aware. This unawareness and lack of financial knowledge is a massive dent in the population’s financial planning. 

Most individuals have no prominent savings. Those with some savings think that financial planning is all about wealth generation. As a result, essential risk management products, like life insurance, have taken a back seat in their list of priorities. But truth be told – managing your finances will never be complete without including insurance, especially life insurance. 

What Is Financial Planning ?

At its core, financial planning refers to the strategic allocation of your earnings to different financial tools to achieve specific life goals. It is not just limited to saving money from your income and controlling your expenses. Proper financial planning includes safe investments, aggressive wealth generation, and adequate risk management. 

Let us say you earn ₹10 lakhs per annum. If you spend ₹6 lakhs on living expenses and other liabilities, the remaining ₹4 lakhs should be utilised to boost your financial stability. 

For example, depending on your risk appetite, you can invest ₹3 lakhs into various segments. If you want to play it safe, you can deposit 60% in gold and bonds, and rest in mutual funds; or vice versa if you don’t mind taking risks. 

On the other hand, the remaining ₹1 lakh should be contributed towards risk management like insurance. These avenues will safeguard you and your family in case of any damage to your health or possessions.

What Is Term Insurance And Why You Need One

Term insurance is a specific category of life insurance where you are expected to pay a premium to an insurance company. In return, the insurer will provide your family with financial compensation as a lump sum in case of your unfortunate demise. Unlike regular life insurance plans that guarantee some return, buying a term plan is much cheaper since it’s a 100% protection plan that doesn’t guarantee any return if the insurer outlives the coverage tenure. 

But why do you even need to manage your risks? Let us take the example of Rajesh. 

Rajesh is 30 years old and a salaried professional. 

The amount he invests regularly in mutual funds (SIP) : ₹10,000 per month

His expected annual return : 15%
Let’s see how his investment performs if he continues ₹10,000 SIP all his life till 60 years or if he cuts ₹1,000 from his SIP and clubs it with ₹1 Crore term plan at ₹1,000/month : 

If Rajesh passes away at any age before 60, the return of SIP (₹9,000) + Insurance > than his SIP’s value. 

This is the power of term plan, and the value term plan provides to your overall financial planning. If you look closely, the gap is much higher if Rajesh faces any life issues before 50 years old. This indicates that the worse the unfortunate scene would be, the better the cushion provided by the Term plan. Remember, wealth generation should not be your sole goal in financial planning. If Rajesh had no insurance, his best mutual fund plan could also fail.

Term Life Insurance Benefits In Financial Planning

With robust financial planning, you can avail of the following life insurance benefits :

1. Financial protection for family

One of the most prominent life insurance benefits is financial protection. By buying a term life plan to manage your risks, you can ensure your family’s financial stability even after your demise. If planned well, term plans provide enough coverage for your family’s daily expenses and upcoming life goals.

2. Tax benefits

Term life policies come with a three-way benefit regarding tax liabilities. Here is how you can avail of these tax benefits :

• Section 80 C : According to this section, you can avail of up to ₹1.5 lakhs in tax deductions for the premiums paid towards your term plan.
• Section 80 D : According to this section, you can avail of additional tax deductions if your term plan has health-related riders. 
• Section 10(10D) : All the proceeds from maturity or insurance death claims will be tax-free under this section. 

3. High coverage at affordable premiums

Term plans are known to be highly affordable. In most cases, these plans will offer you a high coverage amount with the premium – for example, ₹1 crore, in exchange for ~₹1000 per month or ~₹12000 annually. 

4. Flexible features

Term plans stand out for their flexibility. Policyholders can choose the policy’s tenure, select the desired coverage amount, and even incorporate add-ons to suit their needs. This degree of customisation positions term plans as highly preferred risk management solutions within the insurance domain. In fact, with limited period payment, premium waiver and smart exit benefits, you can make managing finances for a term plan even more affordable and accessible to strike a perfect balance in your overall financial planning. 

Key Takeaways

Managing your finances is not limited to wealth accumulation. Managing risks and ensuring the financial security of your loved ones is also equally important. Life insurance, or term life insurance, to be specific, can be an indispensable and affordable tool that allows you to manage your risks efficiently. Platforms like PhonePe offer unlimited convenience and a seamless insurance purchase experience.