Why buy a Term Plan when I am building a healthy investment portfolio already?
We often get involved in building an investment portfolio for a variety of reasons. Someone builds a portfolio to create wealth over a period of time, while others do it to achieve certain financial goals. While some invest to beat the inflation, and create a financial buffer, while others invest to gain out of it and invest in that house they always wanted to buy.
No matter what your reasons are for building an investment portfolio, they usually do not comprise of situations in the future that have been seen nor have any assurance for. If your plans include the term ‘future’, the term brings in uncertainty along with it. So, the question of the hour is, if you are building an investment portfolio, should you bother yourself with a Term Plan? Let us figure out that answer together.
Even before we start answering that question, we first need to get hold of the concept of a term insurance and what exactly does it offer. A Term plan is a good old insurance policy or a plain insurance plan whose sole motive is to provide you with sufficient life cover. Because the policy doesn’t have its focus on too many areas it does exceedingly well with what it offers. If you want to buy a Term Insurance, you pay the premium amount for a certain number of years or term and the insurer would provide you with life cover for that duration. In the unfortunate event of the loss of life of the insured, the nominee would receive the sum assured amount as claim. However, if the insured sees this duration through, there are no financial gains whatsoever. One of the reasons behind its immense success is its ability to provide extremely high covers at very affordable premiums.
The Reasons of buying a term plan
There are more than a few reasons why you should go ahead and buy a Term Plan even if you have a proper investment plan outlined. The following are some of the prominent ones.
- Taking Care of your loved ones
It is great that you are taking the onus on yourself to plan your investments. But what would happen to those investments and decisions if something unforeseen happens to you? More importantly who would take care of the financial needs of your family in your absence? A Term Plan would act as a friend that takes care of your family's financial concerns in your absence. It would ensure that your family is not stuck in some limbo, but able to continue with their lives. But to enable such capabilities it is important to choose your plan carefully and opt for a sum assured that would suffice the needs of your family and loved ones. One of the most commonly followed rules to calculate the sum assured is to multiply your annual income by 10 to 12 times minimum.
- Easy on pockets as premium is low
For the life coverage that Term plans provide you with, the insurance premiums that they charge are pretty nominal in nature. In fact, term plans are more affordable when compared with most other insurance products. For a man whose age is 30 years, can opt for a term plan of 1 Crore by paying annual premium charges of just around Rs. 8-9,000 per annum. The premium fluctuates based on several factors such as the term of the policy, addition of riders, smoking and drinking status of the individual etc. But as you can see from the example, they are pretty easy on the pockets.
- Benefit from Riders
Term insurances usually come with a host of features and customizations, which make them unique. Riders or Add-ons are extra features that you can add to your basic Term Plan to enhance its coverage without having to buy a new insurance or shell out a lot of money. Depending on your needs for riders, you can choose from accidental death benefit, disability, critical illness, waiver of premiums under certain conditions. These will help you push the limits of your Term Insurance and ensure that you get much more value for your money.
While building a healthy investment portfolio is good for meeting your long term financial goals and protecting the financial future of your family, but what happens if something happens to you if you are the sole bread earner of your family. This is when term plan comes into picture. While you are working and alive you can focus on building a healthy investment portfolio but at the same time you should keep yourself sufficiently covered with adequate life insurance too so that in your absence your family’s financial future is not in danger. As a sole bread earner, you may have lots of financial commitments thus getting a right Term Plan is one of the smartest decisions that you can take.