Why Every Professional Needs a Life Insurance Plan

Professionals often juggle multiple responsibilities, such as earning an income, loan repayments, supporting dependents, and saving for long-term objectives. Among all these duties, having a life insurance plan is important because it acts as a safety measure in financial planning. This plan helps protect against financial loss and ensures the family’s financial stability in the event of an untimely death.

For salaried individuals, particularly with long-term dependents or liabilities, term plans offer an easy and affordable means to purchase high coverage. These plans provide financial support that enables them to settle recurring expenses, repay loans, and meet future needs without any hassle.

Understanding Life Insurance Plans 

A life insurance plan is an agreement between the policyholder and the insurance company where the insurer promises to pay a designated sum to the beneficiary upon the policyholder’s death, in exchange for regular premium payments.

Term plans are one of the most popular types of life insurance. They are designed to provide death benefits without any investment component or maturity benefit. They provide adequate coverage at low premiums and can be easily obtained by young and mid-professionals.

Why Life Insurance Plans are a Must for Professionals

With rising responsibilities and financial commitments, professionals can’t afford to leave their families unprotected. Let’s explore why life insurance is no longer optional but essential.

1. Secures Financial Dependents

Professionals generally support spouses, children, or older parents. A life insurance policy ensures that the family’s financial requirements, such as day-to-day expenditures, education fees, or rentals, are fulfilled in the policyholder’s absence.

2. Low Premium, High Protection

Term plans provide high coverage sums at low premiums. For instance, a professional aged 30 and in good health can easily buy a ₹1 crore coverage without compromising their monthly budget.

3. Covers Loan Liabilities

Salaried individuals commonly take out home loans, automobile loans, or business loans. If the borrower dies, the loan may become the family’s responsibility. Having the right term plan in place ensures that beneficiaries can use the payout to settle the debt and manage ongoing expenses.

4. Tax Savings

A tax deduction on the premium paid for life insurance under Section 80C of the Income Tax Act if certain criteria are met. Additionally, the payout received by the nominee is usually tax-free under Section 10(10D).

5. Peace of Mind

Knowing that the family’s financial security is taken care of offers confidence in financial planning to pursue personal and professional aspirations without hesitation.

Different Types of Term Plans

Term insurance comes in different variants to suit specific needs:

1. Level Term Plan

It pays a fixed sum assured in return for a regular premium throughout the policy term, making it a simple and widely popular choice.

2. Increasing Term Plan

The sum assured increases by a fixed percentage every year, helping the policy keep up with the growing financial obligations.

3. Decreasing Term Plan

The sum assured reduces over time, making it suitable for covering loans that also reduce loan obligations.

4. Return of Premium Plan

Pays back the premium if the policyholder outlives the term. It costs more than a regular term plan, but it’s a good option for those seeking insurance plus a guaranteed return at the end.

5. Convertible Term Plan

Provides the policyholder with the option to switch to another category of life insurance at a later time, providing flexibility in the future.

Term Insurance Riders

Optional riders offer additional financial protection. Some common riders include Accidental Death Benefit, Critical Illness Cover, Waiver of Premium, and Disability Income Rider.

Though these riders increase the coverage extent, they may lead to a rise in life insurance premiums. Also, rider terms and availability may differ from one insurance company to another, so it is important to examine options thoroughly before selecting.

Real-Life Example

Consider Raj, a 35-year-old consultant with a dependent wife and two children. He opts for a ₹1 crore term plan for 30 years. In the event of his untimely death, the fund will be used for:

• Settling his home loan: Suppose Raj has an outstanding home loan of 25 lakh, a portion of 1 crore would go towards clearing this.
• Educating the kids: Higher education can cost around 12-15 lakh per child.

Even with approximate values, this example shows that ₹1 crore isn’t excessive. Without this cover, the family might be forced to sell assets or take on debt just to meet everyday expenses.

How to Choose the Right Life Insurance Plan

Professionals should consider all of these elements when looking over a life insurance policy.

• Coverage Amount: Experts recommend that term insurance coverage should be at least 10 to 15 times the yearly income. Nevertheless, the actual coverage amount may depend on individual goals, existing debts, family situations, and day-to-day costs.

• Duration: Select a term that reflects how long the family needs the financial support, for example, until children become financially independent.

• Affordability: Choose insurance premiums that are within one’s current and future financial capacity. It is not advisable to purchase a policy that cannot be sustained comfortably over time.

• Claim Settlement Ratio: Pick companies with a CSR of at least 95% to verify their trustworthiness. A high CSR indicates that the insurer settles the majority of claims received in a year, suggesting reliability.

• Optional Riders: Riders should be selected based on individual health conditions and needs. For instance, a critical illness rider can provide additional financial protection in case of a severe health diagnosis.

Conclusion

Life insurance can be a valuable component of financial planning for those balancing work, family, and everyday expenses. A term policy offers a straightforward way to provide financial protection for dependents in the event of the policyholder’s death. Including life insurance in long-term financial considerations reflects a proactive and responsible approach to ensuring the family’s well-being.