When Buying Life Insurance, Always Buy Term Plan First

By Adhil Shetty | December 21, 2017

It’s the most basic insurance plan that you should be opting for as it financially secures your family in an unfortunate event of your demise.

When Buying Life Insurance, Always Buy Term Plan First

As the year ends and the last quarter of the financial year beckons, many people in a hastened attempt to save taxes will be looking at investing in insurance plans that guarantee exemption. Although there are a variety of insurance plans to choose from, it is wise to assess your budget and the coverage or return you seek, and then go for an option that suits your needs. In case you have a surplus fund, then you can divide the same into term insurance and other investment avenues.

 Always Start With A Term Plan

If this is the first insurance you are ever buying for yourself, go for a term plan. Term Plans provide coverage for a definite period of time and if the policyholder expires during that time period, the beneficiary or nominee as stated in the document will get the full sum assured. Such a plan is best designed for those looking to secure the future of their dependents. These plans offer large life covers at low premiums. By buying a term insurance plan, customers are also able to get good tax benefits. A term insurance policyholder can avail tax deductions under Section 80C of the Income Tax Act, 1961, and can get further deductions up to Rs. 1.5 lakhs.

In term policies, if you stop paying the premium the risk cover ceases and the policy ends. On the flip side, nothing is payable as there is no savings element in the policy. This plan doesn’t come with a maturity benefit either.

When buying a term insurance plan, you should always take an appropriate cover based on your family needs as an inadequate cover will not help your family much, whereas a cover more than how much you actually need would make you pay a premium beyond your capacity. When deciding your cover, do include all the costs and funds needed by your family after your demise.

Return-Oriented Insurance Plans

Once you have your primary insurance plan in place, or there is already an insurance policy taken in your name by your parents, you can opt for an investment-linked insurance plan that promises you good returns in the near future. These are usually endowment plans available in the market as ULIPs or pension plans.

However, remember that lock-in periods for most endowment plans are not less. It can vary anywhere between 10 to 40 years. It’s advisable to check death benefits in such schemes. This is necessary especially if the lock-in period is long and you suspect you may not survive till then.

Those in higher tax brackets can opt for these plans on an annual premium basis and get maximum benefits.

For The Seasoned Investor

After investing your funds in fetching good insurance plans, you can invest in Mutual Funds with the remaining cash that you are left with, especially if you seek quicker and higher returns. This option is apt for those seeking inflation-beating returns, thanks to their easy liquidity and tax-efficiency. Mutual Funds are a great way to get a pulse of the market. And you do not need to be associated with the risks of intra-day and short-term sells in the stock market. If you are new to the Mutual Fund game, get the help of a brokerage firm or seek an advisor. They will help you as pick the right fund.

So when you decide to buy an insurance plan for yourself, remember that there are different plans serving different purposes. A term plan is for financial security, while ULIPs are for investment-based returns. Pension plans help you build a corpus for retirement, while child plans help secure your kid’s future. Choose wisely!

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About Adhil Shetty

Adhil Shetty is the Founder and serves as the Chief Executive Officer of BankBazaar.com. Adhil has a Master’s degree in International Relations with a specialization in International Finance and Business from Columbia University in the City of New York, and a Bachelor’s degree in Engineering from the College of Engineering Guindy, Anna University. Adhil is an expert in Personal Finance (Car loan/Home loan and personal loan) and he majorly consults on investment and spends rationalization for the Indian loan borrowers. His guidance is number based with real time interest rate calculations and hence useful for consumer’s real time query.

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