Term insurance: Your best friend when there’s a loan to repay
It is said that nothing is constant in life except change. Life can change for the better in just a day. Or it can turn topsy-turvy in the blink of an eye. While each of us is happy to welcome some good news, how prepared are we to handle the worst?
Let’s take the example of Rohit*, a 38-year-old bank employee with a family of four in Mumbai. He has a home loan to his name that he applied for five years ago. He is the sole breadwinner of his family. This means that if the unthinkable were to happen to Rohit, his spouse and young children would have to fend for themselves using whatever savings and investment money he has set aside while still alive. With his income coming to a stop after his demise, the home loan can no longer be repaid. At this juncture, his family will have to sell some expensive asset to repay the balance loan amount, or give up the house that they are currently staying in when the bank attaches it.
But Rohit has taken this eventuality into account, and has already purchased term insurance. He understand that he cannot leave his loved ones vulnerable to the vagaries of fate. A term plan can help them meet their future expenses even when his income stops.
What is term insurance?
It is a life insurance product which insures your family in the event of your demise, against financial upheaval in the absence of your income. Even though your income stops, expenses towards household maintenance, children’s education, emergency medical expenses, etc. go on as before. Term life insurance provides the necessary financial wherewithal to deal with these financial heads without having to give up home and hearth.
The biggest benefit of taking a term insurance plan is that the sum insured is often a high one (often Rs 1 crore and above, depending on the plan you choose) while the premium payable is quite affordable. This means that you can buy enough coverage without burning a hole in your pocket, unlike most other expensive life insurance products.
Why taking a term insurance plan is a smart idea
* It safeguards your family members against the threat of financial uncertainty in your absence.
* Since the term policy money is a substantial settlement, it can pay for children’s education and/or wedding, spousal support, medical costs for a family member, repaying unpaid debt, maintaining the house and its assets, etc.
* If you have taken a home loan to buy a house and you are unfortunately absent while the loan is still partly unpaid, the term insurance money can be used to repay the balance loan amount. In this sense, you can keep the term insurance plan as a contingency plan in case the home loan is still unpaid while the plan is active.
* The insurer does not concern themselves with how your family uses the term plan money. Once the claim is filed correctly, the money is released quickly in a lump sum amount for your family to spend as they deem fit. So, if their urgent need is to repay the home loan, they can easily do so using the term policy money.
Image credit: Term insurance via Artur Szczybylo/Shutterstock