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Why term insurance is the need of the hour

“Insurance is an absolutely critical part of your portfolio, and term insurance is used as an income protection tool. Today, if something unforeseen was to happen to you, your family's cash flow will not be compromised.”

July 01, 2020 / 09:17 PM IST

Emergencies by design are unexpected and disruptive, which can severely impact us; financially and emotionally. While we can’t always be prepared for them, we can ensure we protect ourselves and our loved ones by providing financial security to manage any crisis.

While the ongoing COVID-19 pandemic has certainly accelerated awareness about insurance, the need for insurance has always been clouded with a 'nothing will happen to me’ attitude. But what about the things that are certain? Such as getting married, having children or retirement. Why do we not make it a priority to cover our life’s certainties?

To help you better understand the need for term insurance and plan for life's certainties, we hosted a webinar with R.M. Vishakha, MD and CEO, IndiaFirst Life Insurance and Rushabh Gandhi, Deputy CEO, IndiaFirst Life Insurance, who shared their expert views and core insights about term insurance.

Here are a few excerpts from the webinar:

Sakshi Batra: “Could you highlight the importance of having a term plan; especially with the backdrop of the current pandemic?”

Rushabh Gandhi: “The need and importance of having a term plan can never be undermined. India is an under-protected country; the penetration rates are abysmally low. Plus, the protection gap is fairly high, which means that the people buying insurance are not buying the right amount. Insurance is an absolutely critical part of your portfolio, and term insurance is used as an income protection tool. Today, if something unforeseen was to happen to you, your family's cash flow will not be compromised.”

Sakshi Batra: “The one question that crosses everyone’s mind before they buy a term plan is how to decide the best cover for themselves, and what are the factors one should base this decision on?”

Rushabh Gandhi: “As a thumb rule, it is always best to take a look at what you’re earning, and multiple accordingly; which can typically range from 12-14 percent. This multiplier keeps reducing as you get closer to retirement. Other than that, you need to see where you are in the overall life cycle; who all are you supporting; and what needs do you still have to fulfil from a financial standpoint.

Sakshi Batra: “What kind of payout options should one choose for their term plan; a lump sum benefit on death or a long-term monthly based income for the family?

R.M. Vishakha: “A lot has been written with regard to the size of cover, but what people tend to miss out is that the term policies you are taking are meant for surviving members; which could be young children or your spouse. The payout option you choose should be based on the financial literacy of the nominee/beneficiary of the policy. People often think that the nominee will have the same level of financial literacy as the policyholder, but there is a need to differentiate between the two. For instance, let’s assume the payout is meant for a young 18-year-old adult, but they receive it at the age of 10. So how will they manage that money from age 10 to 18? They likely won’t be able to. Therefore, you have payout options that allow you to give the money to the child when he/she turns 18. The life insurance company acts as a custodian of that death claim and pays it out. There are also options where the life insurance company acts as a custodian and an investor and gives out the monthly income to the nominees and survivors. Individuals need to examine what their family really needs. Do they want to place the burden of managing that lump sum benefit on the family who is already grappling with the emotional loss of their loved one? Or do they want to plan it to the last mile to make sure that the income replacement happens the way it’s meant to? The lump sum benefit can then come when it’s needed, for paying college fees or the child’s wedding. That is when you have a holistic plan.”

Watch the video above to uncover more insights and advice.

This is a partnered post.

Tags: #Features
first published: Jul 1, 2020 07:25 pm
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