Who Should Buy A Term Insurance Plan

Imagine your friend is investing in a mutual fund and recommends that you do the same. But, before you do so, you will obviously need to deep dive into its various aspects - Do you need to invest in a mutual fund? Does it give you good returns and is it risky? How has it performed in the past? Will it help you achieve your financial goals, like building a savings fund?

In a similar way, when you set out to invest in a term insurance plan, you need to look into the various benefits it offers and whether it will really help you out. You shouldn’t buy a plan just because your friends are doing it or your parents have advised you to. Carefully look at your needs, financial goals, and family requirements - before you make the decision.
 

First, Let’s See What A Term Plan Is

A term plan pays a fixed sum to your loved ones if you pass away during the policy tenure. This amount can help your family meet their financial goals, pay off any outstanding debts, and live a comfortable life even when you are no longer around. It acts as a financial shield.
 

You Should Consider Buying A Term Insurance Plan If…

1. You Have Financial Dependents

   The family members who rely on your income for their financial well-being such as - your spouse, parents who are retired, younger siblings, children (present or planned), etc. are considered financial dependents.

   For example, say you have a younger brother who is physically challenged. You are taking care of all his needs from basic necessities to his recurring medical expenses. He may depend on you financially for his entire life. Here, your younger brother is your financial dependent.

   Their lifestyle and life goals are dependent on your earnings, so you need to protect them with an appropriate insurance plan that provides adequate coverage in case of your sudden demise.

   Term insurance policies can provide your loved ones with financial security and ensure they won't have to compromise their standard of living - in your absence.

   Note: Even if you have taken out a joint loan with someone in your family who is earning and independent, consider them your financial dependent, since they'll be forced to pay off the loan in the event of your untimely death.

2. You Have Financial Responsibilities

   There are certain responsibilities and obligations that every earning member of the family has towards their spouse, parents, siblings, and children. These may include your child's education, younger sibling's wedding, parent's medical expenses, etc.

   And, fulfilling your family’s dreams and aspirations is your utmost priority. But, meeting these obligations may prove to be difficult - if something unfortunate happens to you.

   A term insurance policy will provide your loved ones with a fixed amount of money if you were to pass away suddenly. In this way, you can help them achieve their dreams and goals - without hindering their current lifestyle.

3. You Are Yet To Build Enough Wealth

   Creating sufficient wealth in life will ensure that your family is financially secure, even in your absence. But that's not always possible, right? Different people have different financial capabilities. So, if you are still in the process of building sufficient wealth that will meet your family's financial needs, term insurance is a wise choice so your family will always have a financial cushion.

   Let's say Ram has saved Rs 10 lakhs for his family of three. And Shyam has accumulated a wealth of Rs 1 Crore for his family of three.

   If Ram passes away	If Shyam passes away
   It will be very difficult for the family to survive with the 10 lakhs for the rest of their lives, so he should consider buying a term insurance plan with a good coverage.	His savings of Rs 1 Crore will ideally be enough to cover the needs of his family for their entire lives, so he need not buy term insurance.

4. You Have Debts Or Liabilities

   If you have taken a large home loan, a business loan, etc. and suddenly pass away before repaying the loan, your family will have to bear the responsibility. In such a case, term insurance shall help cover all the outstanding loans - thereby preventing your family from experiencing financial hardship.

   Let's say you take a home loan of Rs 25 lakhs. In the event that you pass away before repaying your loan, your family will be left with the repayment burden. However, if you have a term insurance policy with Rs 50 lakhs cover, the insurer will pay your family the claim amount. This amount will enable them to pay back the outstanding loan and live a comfortable life thereafter.

   Let's look at some examples to understand who should buy term insurance and who shouldn't -

   Case 1: Madhav, a 25-year-old, has a younger brother with a physical disability. Both of his parents are retired. All of them are financially dependent on him.

   Case 2: Durga is a 30-year-old single woman with no financial dependents. She doesn't have any loans or liabilities either. Both of her parents are government employees.

   Case 3: Dev is a 27-year-old married man, who has a 5-year-old son. He doesn't have any loans or liabilities. His spouse is financially dependent on him.

   Of the three, who needs term insurance and who doesn't?

   Let's take a look -

   Madhav	Durga	Dev
   Madhav’s brother will likely need financial support throughout his life. Both of his parents are retired, so he will have to take care of their needs as well. Therefore, Madhav will need term insurance.	Durga is not married and does not have any financial dependents. neither of her parents relies on her financially. So, she doesn't need a term insurance policy at the moment.	Both his spouse and child are financially dependent on him. So, he will need to purchase term insurance.

Summing up!

Term insurance is intended to secure the financial future of your family - in your absence. Hence, if you have financial dependents, financial responsibilities, loans or liabilities, or insufficient wealth to fulfil your family's financial goals - term insurance is your best bet.