Term Insurance: A Vital Component of Your Financial Plan

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No financial plan is complete without term insurance. This can be a quotable quote that holds great relevance in the current scenario! Term insurance is akin to a layer of financial security that takes care of your family’s needs, even in your absence. The best part is that the investment required for this security is comparatively nominal as well. You can now easily buy term insurance online as a basic starting point for your financial blueprint. However, why is it so necessary? Here’s looking at the aspect in greater detail, along with the steps toward creating a financial plan.

Creating A Financial Plan- How It Works

Building a financial plan requires careful planning and homework on your part. Here are some points that you should remember while chalking out the same:

● A good financial plan should have three basic components, namely investing for future wealth creation and goals, securing the family financially for various scenarios, and keeping some money aside for sudden requirements or emergencies.
● For the third component, it is advisable to build a safety net of at least 3-6 months of your monthly income as liquid cash in the bank. You can withdraw this anytime during emergencies. Leaving this amount untouched is highly recommended.
● For the first component, you should take professional advice before choosing financial products to invest in. For wealth creation and inflation-beating returns, you can choose options like ULIPs (unit-linked insurance plans) and other investment options that help you earn steady returns over the long haul while giving you tax benefits. ULIPs also come with the dual benefit of life coverage throughout the policy tenure. You can choose child plans, retirement plans, and other kinds of investment options that straddle both high and low-risk categories.
● For the second component, you should first buy term insurance online as pure life coverage for the family. You can utilize a term insurance premium calculator to figure out what your desired coverage will cost you.  This will ensure that they have enough (provided you have chosen suitable coverage) to tide over the financial impact of your untimely demise in the future, right from monthly costs and debt repayments to meeting goals like higher education or children or weddings. You should also add health insurance to your portfolio, making sure that your family is adequately secured in this aspect as well. There are several health-related and other riders that you can also add to your term policy to widen the scope of coverage.
● Your financial plan should always have inflation at the forefront in terms of projected future costs. Make sure that your current and future liabilities are accounted for as well.
● Estimate your cash flow at present and in the future, along with your risk appetite and investment budget.

Considering these aspects, a term insurance plan should be a vital aspect of the second component.

What Your Term Insurance Plan Should Cover

Your term insurance policy is a vital part of your financial plan since it ensures adequate security for your family in various situations. Your plan should cover the following aspects:

● The regular or monthly costs of your family
● Future goals of the family include the higher education costs of children and weddings
● Your current liabilities, like loans and debts
● Any other costs that may be associated with the disability or demise of the primary breadwinner, like funeral costs, costs of estate transfers, legal costs, and so on

Your term insurance policy should ensure a lump sum amount for investments towards future goals while repaying liabilities. You can also choose a payout which is distributed into a lump sum amount and a monthly income. This is the way in which your term insurance policy will be a vital part of your financial blueprint.

How To Purchase And Manage Your Term Insurance Policy

You can buy term insurance online as early as possible. This should be your first investment, along with health insurance. You should also periodically upgrade your term plan in accordance with evolving circumstances. You should not only revise your term plan in sync with future estimates of cash flows and also accommodate new investments, goals, and contingencies.

You should revise your term insurance policy when there is a new member in the family, either through marriage or childbirth. You should also revise your plan when you take a loan or any other debt like a business loan or home loan. The revision can also be done when the family income changes. These are instances where the importance of a term insurance plan cannot be disputed. Whenever you revise your financial plan, you should also revise your term insurance coverage in sync with the same. Term life coverage is an indispensable part of your financial blueprint, keeping all these aspects in mind.

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