Investing Surplus Funds In Term Insurance

Financial planning is like a road map for one’s life. It helps you plot out the route you want to take, set milestones along the way and be on track to reach your ultimate destination. Say you set aside funds for your financial obligations including your child's education, buying a house, etc. and you accomplish these goals. Now, with your responsibilities taken care of, you start looking further down the road map at other opportunities you can take advantage of with the extra resources available. This excess amount left with you is called surplus funds. When you have no other financial liabilities, it may seem appropriate to invest them to repay benefits.

While there are numerous investment options available, term insurance stands out as a prudent choice. Investing in it will help you secure the excess money - while also providing valuable protection for your family. Be sure to consider your current financial situation, future financial goals, and the purpose and timing of this purchase before taking the plunge.

So, what makes term insurance a good choice and what are its benefits? Let’s find out.

Why Should You Invest Your Surplus Funds In Term Insurance?

A term insurance policy is the most straightforward way to protect your family's financial future. It lends a helping hand by offering a sum of money to your loved ones - so they can continue to enjoy the lifestyle they are accustomed to - if you pass away during the policy period. The money also gives them the opportunity to live out their dreams.

Term insurance is primarily intended to cover your family's financial needs or protect them from significant liabilities you may have - which may otherwise leave them in a vulnerable financial position in your absence.

(This may not be relevant as we are speaking about investing surplus funds once the future liabilites/loans are fulfilled and yet the person has surplus fund to invest)

Benefits of Term Insurance

Here are 6 reasons why term insurance is a worthwhile investment -

Provides Financial Protection

The primary benefit of term insurance is the financial security it offers to your family - in your absence. This security is invaluable and can help ensure that their quality of life is not compromised in the face of uncertainties. The claim amount can help them cover short-term expenses such as daily expenses, EMIs, etc. and long-term expenses such as repaying debts, covering children's education, etc.

By investing in a term insurance plan, you safeguard your family's financial future, but you can also have the comfort of knowing that you have made a responsible decision that will benefit them for years to come.

Offers Lower Premiums

A term insurance policy typically has lower premiums than other types of life insurance. So, you can secure substantial coverage at a reasonable cost - providing the best level of protection for your family. These lower premiums make term insurance an ideal choice for budget-conscious customers.

Offers Flexibility

Term insurance offers flexibility in terms of policy duration, coverage amount, premium payments, and other aspects. It’s like being able to build your own car - you get to choose the options and features that are appropriate to your family, so you end up with a policy that fits your lifestyle and budget perfectly.

For example, Rahul is a 30-year-old individual living with his wife and 5-year-old son. Both are financially dependent on him. He wants to cover his child's higher education and wedding costs. And, he estimates that both of these obligations will need to be met within 25 years. So, he buys term insurance with a policy duration of 25 years.

Rider Availability

You can customise the policy with additional riders to widen your coverage according to your specific needs. They are optional add-ons you can add to your base policy at a certain extra cost. The best bit is you do not have to submit any additional paperwork or undergo additional medical tests beyond the ones required for the base term plan.

Some of the riders available with term insurance include - critical illness rider, accidental disability rider, accidental death benefit rider, waiver of premium due to critical illness rider, etc. For instance, if you add a waiver of premium due to critical illness rider to your term insurance, the insurance company will waive your remaining premiums if you get diagnosed with a critical illness mentioned in the policy wording.

Provides Tax Benefits

Term insurance also provides tax benefits¹. The Income Tax Act of 1961 provides tax benefits¹ for both premiums paid and claim payout of a term insurance plan.

• Under Section 80C, term insurance premiums are eligible for tax deductions (up to INR 1,50,000).
• Under Section 10(10D)^, the term insurance payout your family will receive if you pass away during the policy term will be completely exempt from tax.

Global Death Coverage

Term insurance covers all types of death caused by natural calamities, intoxication, accidents, etc. anywhere in the world - except suicide in the first year after buying the policy. Deaths because of suicide are covered from the second year of the policy. In such a case, the nominee will receive a refund of all the premiums paid so far (minus taxes).

Wrapping up!

Term insurance is a good way to invest your surplus funds. It is an affordable and reliable way to ensure your dependents will be provided for their day to day life in your abscence, should anything untoward happen to you. Not only does it provide financial security for them, but it also offers a variety of other benefits, such as tax advantages and flexibility in coverage, the policy period, etc. So, if you feel its benefits coincide with your needs - take the plunge and invest today.