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What is Salary Protection Insurance?

What is Salary Protection Insurance?

Term insurance plan

Wouldn’t it be great if you could just ensure that your salary continues to support your family no matter what? Although there are plenty of situations which may cause loss of income, you can ensure an income to the family in at least a few cases.

The simplest and most effective way of ensuring regular financial support to your family is through a term life insurance. You can protect your salary for your family using a term policy.

When Does Your Family Needs Regular Income?

While you are there for your family hale and hearty, you can earn money and ensure that your family’s financial needs are looked after. However, certain events can hurt your capacity to earn money. If such an event is irreversible, your family will need alternate financial support to continue their lives and meet their goals.

Few such events include death, permanent disability, critical illness. You can insure your income and financial support to your family for such events.

Regular Income vs Lump Sum

If you are familiar with life insurance plans, you would know that life insurance policies pay a large sum of money to the family of the insured in case of early death. While the large sum of money is helpful, the family is left to devise a meticulous plan to use this money for:

  • Running the household expenses for a long time
  • Meeting all their future financial goals
  • Still saving enough money at the end of it for the surviving spouse to be financially independent post-retirement

Although it may sound simple to achieve with a pool of few crores, it’s better said than done. Even the most meticulous financial planners struggle to devise a definite plan.

Plus, one of the most important aspects, which happen to sound the simplest, is the household budget. This is not a goal a few years down the line but an immediate need for the family.

Why Regular Income is Important for the Family?

The household budget always has caveats attached to it. For instance:

  • The household budget defines the family’s lifestyle
  • It’s much easier to expand lifestyle than to shrink
  • If the family spends too much money now, they will have a better lifestyle, but they will run out of the pool sooner
  • If the family spends too little, their lifestyle and social status may suffer in the present
  • The family also needs to invest money for future financial goals like children’s education marriage and surviving spouse’s retirement
  • Allocating too high an amount towards future goals may force the family to compromise on the current budget

So, regular income becomes an important factor in the plan. Also, not a lot of people have the experience and expertise to manage a large pool of funds. To expect them to start being an expert right after a death claim could be disappointing and dangerous.

How to Ensure Salary for Family with Term Insurance?

You may already have a term insurance plan which will give your family a large sum in case of your early demise. Your family, after receiving the claim must invest a part of the money into an annuity plan to receive a monthly income.

The investing may be the easy part but as mentioned earlier, it’s how much to invest which will be the tough nut to crack for them. Unless you can plan that for them.

Best term insurance plans today offer regular income pay-out option along with the lump sum payment. You can choose how the total sum assured amount would be divided between the two at the time of buying the policy.

In the event of a death claim, the family will receive a lump sum amount and a monthly income as you intended. Now they will only need to worry about investing the money to meet their future financial goals.

This is how the best term insurance plans become the salary protection plans for your loved ones.

How to Buy Salary Protection Insurance?

Online term insurance plans, like iSelect Star term cover from Canara HSBC Life, offer regular income pay-out option along with a lump sum payment. In Canara’s iSelect Star plan you can even estimate the income you want your family to receive every month and decide your sum assured accordingly.

Here’s how you select your sum assured allocation for your family’s monthly income:

Assuming you are eligible for a total term life cover of Rs 2 crores and you want a monthly income between Rs. 35,000 to 50,000.

Now the plan offers three monthly income options for you to choose from:

  • A fixed monthly income
  • Income growing at 5% p.a. simple interest
  • Income growing at 10% p.a. simple interest

Growing at simple interest would mean that the amount of growth will be fixed in rupees depending on the first month’s income. So, here’s how much sum assured you will need to allocate with the three options:

Monthly Income Pay-out option chosen Conversion factors S.A. for Income of Rs 35,000 Annual Growth S.A. for Income of Rs 50,000 Annual Growth
Equal 10.09 35 lakhs 0 50 lakhs 0
Increasing @ 5% p.a. simple interest 8.34 42 lakhs 1750 60 lakhs 2500
Increasing @ 10% p.a. simple interest 7.11 50 lakhs 3500 70 lakhs 5000

So, to ensure an income between Rs 35,000 per month to Rs. 50,000 per month, you can allocate anywhere between 17% to 35% of your total sum assured to be paid as regular income.

Fixed vs Growing Income

Can you imagine what it would be like if your income did not grow for a decade? Yes, that’s what fixed income can do to your family if it has to continue for a long time. Lifestyle expenses need to keep up if the lifestyle has to stay the same.

The only way to ensure your family doesn’t have to compromise on their regular needs is to opt for a growing income. In fact, if you are available for the family throughout, you will also provide the same and even more. But, when you cannot, at least they won’t have to cut too many corners to make the ends meet.

Speak to an insurance specialist now!

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