Ways to Simplify Life – Series 1
I will address the various types of protection requirements in this series.
A Pure Term Insurance or Pure Vanilla Insurance is the basic step of Financial Planning. It will take care all the financial need & requirements of a family in the absence of a breadwinner or earner of the family.
Vanilla is termed as basic; which also means without any additional feature or optional riders.
Term plan is a life insurance risk mitigation policy that provides coverage for a certain period of time & will ensure the financial protection for the family. A term life insurance policy is a pure life cover. This is the cheapest form of life insurance cover.
A person can take 10 or 15 times cover of his annual income.
I always advise my clients to increase the coverage on every block of 3 to 5 years to be inline with income increase.
This can be taken by any individual who is working and having financial documents like salary slips, businessmen filing Income Tax returns for 3 years or more.
Note of prime importance:
If you have already taken a term cover, any change in your personal habits, lifestyle changes, contracting of new diseases, surgery etc has to be intimated to your insurance company in writing along with medical reports for better claim settlement process.
How a Term plan works
Dr. Ganesh, age 30, a Doctor, has 2 dependants – his parents and his wife. Ganesh’s annual income is 10 lakhs is good enough to support his family, but he is concerned. Since he is the sole breadwinner, his dependants could be under tremendous financial stress in the event of his sudden & unfortunate death. Therefore, to mitigate the risk, Ganesh is considering buying a Term Plan.
He can get a term cover of RS 1 Crore for a policy tenure of 30 years (working age) for an annual premium of around Rs 8,500 – 9,500. The cheapest available option to claim a large cover.
In fact, by paying just 1 percent of his annual income, Dr. Ganesh will be getting a life cover of Rs. 1 Crore.
So in the event of Dr. Ganesh’s sudden & unfortunate death, An Insurance company will give a cheque of 1 Crore to the nominee (dependable parents or wife or both). So this money can be used to take care of financial needs of the family as a sole earner of the family is no more.
Benefits of Term Plan
- Low premium: The premium for a term plan is relatively lower than all other insurance plans because there is no investment element in the amount insured.
- Protects family against the financial loss of income: A sudden death of a sole earner of the family is a huge stress on the family as the income is stopped but the daily requirements need to be met.
So take the first step in order to ensure the financial protection of your family by taking a Vanilla Term Plan.