What Is Passive Income And Why Should You Use It To Buy Term Plan?

You understand the importance of saving and investing your hard-earned money to build a secure financial future. It is also a tradition that has passed down through generations in our country. But have you ever thought about what you can do with the returns on your savings and investments? Enter passive income - a game-changer for achieving financial freedom and security.

Passive income is a way to watch your money grow while focusing on the things you love. It is earning extra income from rental properties, dividends, online businesses, etc. These streams of income can be your secret weapons for financial success. And, they can reap mind-blowing benefits when invested in term insurance along with protection of your life.

Therefore, in this article, we will explore why you should use your passive income to buy a rock-solid term insurance plan. Let’s begin!

Understanding Passive Income

Passive income is money that you can make without having to work for it actively. It's like earning money while you sleep. And passive income benefits are manifold - it can help you create wealth, achieve financial stability, and gain financial freedom.

There are various ways to increase your passive income, such as investing in equity funds, fixed-income instruments, pension plans, real estate, etc. These income-generating assets can provide you with a regular income stream without requiring constant effort from you.

Understanding Term Insurance

A term insurance plan is an affordable and effective means of safeguarding your family's financial future. It is a plan designed to provide risk coverage, which means the insurance company will provide a sum of money to your family, known as the sum assured, in the unfortunate event of your passing during the policy period. This amount will serve as a replacement for your income, fulfilling your family's financial needs without them having to compromise on anything. However, if you survive the policy term, you will not be entitled to any benefits.

Benefits Of Term Insurance

Here’s a list of reasons why term insurance is a good choice -

1. Provides Financial Protection To Your Family Term insurance is one of the smartest choices to make sure your loved ones are financially protected if something happens to you while the policy is active. Think of it as a way to provide income for your family even when you're no longer there. It can help them maintain their standard of living, pursue their dreams, and meet their future financial needs without any hardships.

2. Affordable Premiums Another benefit of term insurance is that it offers affordable premiums. For instance, if a 30-year-old non-smoker male opts for the ABSLI DigiShield Plan [UIN: 109N108V11] with the regular pay option, policy duration of 30 years, and a cover amount of Rs. 1 crore, the plan will cost him just Rs. 1081 per month (with taxes).

Note: The premium was taken on 07/07/2023.

3. Highly Customisable Term insurance is a flexible and personalised way to protect yourself and your family. In other words, it allows you to create a policy that suits your specific needs and preferences, just like getting a personalised birthday cake.

You can customise your policy with various options, such as premium payment frequency, premium payment model, claim payout options, riders, etc. Moreover, if you want to increase the sum assured over time, you can opt for the ‘increasing cover’ option. It will increase your sum assured by a certain percentage until it reaches a predefined limit.

4. Dual Tax Advantages Term insurance offers significant tax benefits¹ that can be availed for both the premiums paid and the claim received. These benefits are provided under different sections of the Income Tax Act of India, 1961.

➔ Enjoy tax deductions under Section 80C of up to Rs 1,50,000 for the premiums you pay every year.

➔ And, the claim amount your family receives if you pass away during the policy period is also exempt from tax under Section 10(10D)^.

Now that you have understood the perks of having term insurance, let us quickly examine why purchasing it with your passive income is a smart choice.

Why Should You Buy Term Insurance With Passive Income?

By accumulating enough wealth through passive income streams, you can free yourself from relying solely on active work to save money. Put simply, it paves the way to financial independence. However, it is important to keep in mind that the income generated from passive sources is influenced by different economic factors and the current rate of return. This means that the amount of money you earn can vary based on market conditions, economic trends, and how well your assets will perform. For instance, if you earn rental income from properties you own, it can be influenced by factors like how many properties are vacant, the demand for rentals, and changes in the property market. Similarly, when you invest in stocks or bonds, the returns you receive can vary based on how well the stock market performs or the interest rates offered by bonds.

Thus, your passive income may not be consistent monthly, making it necessary for you to be flexible with your budget. This variation requires careful financial planning and budgeting, as that will help manage expenses effectively during periods of lower income or when you are no longer there to provide for your family.

Hence, it is absolutely necessary to purchase a term plan, as it will safeguard the financial well-being of your loved ones. And, when you combine passive income with term insurance, you create a comprehensive financial strategy that provides both protection and growth, ensuring a stable and secure future for your family.

Now, let’s understand the how part. Your family requires regular money, especially on a monthly basis, to take care of their everyday expenses. And, without a reliable and consistent income, the surviving family members may have to compromise their lifestyle. And if they require income support for the long term, they may also have to face the impact of inflation on necessary expenses. In such situations, relying solely on passive income may not be sufficient to bridge the financial gaps.

Moreover, many breadwinners focus on saving and investing their hard-earned money. Often, the aim is to accumulate enough savings for significant milestones like a down payment on a home. However, if something were to happen to you and your monthly income is no longer available, your family may struggle to achieve their financial goals.

This is why you should buy a term insurance plan with your passive income. It not only safeguards your family from immediate financial obligations but will also provide them with a sustainable source of income to support recurring expenses. Thus, term insurance is the practical and affordable way to enjoy a sense of security, safeguard your family’s financial future, and feel at ease!

Who Should Buy Term Insurance?

Term insurance is a great way to create a sustainable and dependable source of income in addition to any other income streams you may have set in place. Thus, regardless of the type of income you generate, it is important to consider purchasing term insurance, if -

• You have dependents, such as children, a spouse, or retired parents who rely on your income.

• You have not accumulated enough savings to meet your family's present and future financial needs.

• You have a substantial loan that could burden your family in the event of your demise.

• You have unfinished responsibilities like funding your children's education/ weddings, etc.

Conclusion

You can unlock financial freedom with passive income and protect your loved ones with a term insurance plan. Passive income, is the money earned without active work, it may fluctuate, but when combined with a term plan, it ensures a stable stream of income and long-term security for your family. So, make a smart decision today, to secure your loved ones’ tomorrow!

Product Disclaimer:

ABSLI DigiShield Plan [UIN: 109N108V11] is a non-linked, non-participating individual, life, pure risk premium term insurance plan.