One of the most common reasons people invest in term insurance policies is to save tax. But that’s not why you should buy another life insurance every few years. Life insurance is an essential investment that means you need to have adequate life insurance at the minimum possible cost.
Your life cover needs to keep up with the progress of your life. There are a few major life events which can impact your life insurance need significantly. Here are five such events when you will need to upgrade your life cover to match your needs:
Income growth is one of the most frequent phenomena, which directly impacts your life cover need. However, even this does not mean you need to buy a new life insurance plan at every appraisal.
But, when your income has grown enough to change your lifestyle, and household budget, it’s time to look for additional life insurance. Here’s how you can estimate your additional life cover need in simple steps:
A sample estimate: Assuming your annual take-home income is Rs. 15 lakhs now, and your existing term cover is Rs. 1 crore. Your total life cover need is at least Rs. 1.5 crores (10 x 15 lakhs). Since you already have a life cover of Rs. 1 crore, you can get an additional Rs. 50 lakh term cover to match your need.
Nowadays you can invest in term plans not just to safeguard your family, but also to pass on an estate to your children. All you need to do is get a term cover till the age of 99. Despite growing life expectancy in the country, average life expectancy is likely to remain below 99 in the next 50 years.
Meaning, your 99 years term plan is most likely to receive a death claim, even when your death is completely natural, thereby, providing your nominee children or grandchildren with a ready to use estate.
Coming from a life insurance company as a death claim, this money will be tax-free in the hands of your nominees. That’s not all, you can even set up a trust to invest the proceeds safely and then turn the income to your beneficiaries.
This is one of the best ways to leave a positive mark on the world and fund charitable work even after you are no longer in this world.
Regular income is an important feature to simplify the life of your dependents after your untimely demise. Most traditional life insurance plans and older term insurance plans offer only lump-sum payout. Whereas, your family will need a monthly income to run the household smoothly.
In the absence of a monthly income, the family will have to buy an annuity from the life insurer using the lump-sum money received from the insurer. The effort is completely unnecessary and poses risks of the wrong allocation or even wrong investment.
However, they don’t have to worry about this step if they can receive a safe and regular monthly income as part of life insurance claim settlement. The only challenge is your older life and term insurance policies are unlikely to have this option.
Since you cannot switch to this option after purchase, you need to add a new policy with regular income payout benefit. Canara HSBC Life’s online iSelect Smart360 Term Plan has the option to pay 100% of the death benefit as regular income. Also, the family can receive income for up to 40 years after the claim.
If you are taking a significant loan for building asset, or business, you must add more life cover to your contingency folder. You don’t want the liability passing on to your dependent due to a mishap.
Also, increasing only life cover is not a good enough proposition. Life cover will only come into the frame once you have met the ultimate fate. But you will need to take care of the liability even if you cannot earn due to a life-threatening illness or disability.
So, consider adding some accidental disability and the critical cover as well. You can get both as added benefits to your new term life cover.
As parents, you are already investing in your child’s future goals financially and otherwise. But unless you are investing in a child plan from a life insurer, you should add a separate life cover to secure this goal.
Child plans have this inbuilt feature that once you set the goal to an amount, the plan will pay that much money to your child. If you could complete your investment tenure and accumulate sufficient money, great!
But just in case the investments in the child’s goal stop due to an unfortunate development the goal does not suffer.
If you have bought the life insurance with the start of married life, or earlier, you should consider increasing the life cover once you welcome a child into this world. Few modern online term insurance plans allow you to increase your term cover without buying a new plan.
But unless you have such a term plan in place, you should consider buying a new one.
You should note that it’s never a good idea to replace your old term cover with new. The reason behind this thumb rule is that even if your old plan had fewer features, it is going to have a lower premium and higher chances of quick claim settlement.
Thus, unless your old term plan is expiring soon, you should continue the plan instead of getting a replacement term cover. But yes, do keep your life cover up to date. There is nothing more important than ensuring a safe financial future for your family.
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