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Every individual strives to ensure a comfortable life for their family. Providing for your loved ones when everyday expenses have been soaring has made saving difficult. Paired with this is the misconception that savings alone is adequate financial planning for the future.
However, the truth is that although savings are an important component of a financial plan, term insurance is also essential for the financial security of your family. This is because a term policy protects your family against the possibility of your untimely demise.
Consider this scenario: A male in his early 30s is the sole breadwinner of a family that consists of his spouse, who is a homemaker, a child, and senior parents. If something unfortunate was to happen to this individual, he would leave behind a family of four to fend for themselves.
Additionally, if the repayment of a home loan or any personal loan has been pending, the family is further financially distressed in an already vulnerable situation. To prevent such a scenario, one must have or buy term policy early on.
To choose the right, it is recommended that you look for an online term plan as it would ease the process of comparison.
Building your own house is an important milestone in an individual’s life. Several working professionals have experienced the perils of having to live in a rented apartment and shifting to the whims of the landlords. A home is the promise of security and symbolises stability in an individual’s life.
For those who have the required capital, they can buy their house with ease, but for most middle-class individuals, a home loan is a prerequisite for buying a house. With the increasing property prices, the assistance of a bank to buy a home has become essential. However, while taking a loan might be easy, both the borrower as well as the lender need to mitigate the risk of non-repayment of the loan.
Lender’s Risk Mitigation
The risk by the lender is mitigated by providing a loan for 80% of the property value. This means that the borrower has to pay the balance 20% on their own. The risk is considered lower when the funds of the borrower are also involved. In addition to this, lenders ensure that the EMIs don’t exceed 50% of the borrower’s monthly income so that the payments can be made with ease.
Borrower’s Risk Mitigation
As for the borrowers, they need to prevent any scenario wherein the EMI payment defaults or where their family is left to shoulder the heavy financial load. Unfortunate eventualities such as an accident or the death of the borrower could lead to this concern. To avoid this, the borrower needs to take term insurance for a home loan.
A term policy is highly recommended to prevent the risk of non-repayment of the home loan in your absence. This is because when you buy term insurance, you get a financial cover that would not only act as an income replacement for your family but will also pay for your existing liabilities such as a home loan so that your family can continue living comfortably.
There are different types of term insurance policies that you can opt for based on your financial requirements. Term insurance is a highly affordable cover as it provides a high sum assured at a significantly lower premium amount. Moreover, you can further enhance your saving by buying an online term plan. This is because the premiums are usually cheaper for an online term plan as compared to buying a term policy in person through an agent or a broker
However, for a term policy to truly benefit you, it is important to calculate the required coverage amount carefully. Consider all your financial liabilities and analyse your lifestyle before making the purchase. If your liabilities are not considered in the cover, then your family will be burdened with taking care of them in your absence.
In addition to simple term insurance, it is also advisable to get a critical illness cover for an added layer of protection. The critical illness rider# will take care of your financial responsibilities if you are diagnosed with any of the listed critical illnesses on the cover. The reason why this cover is beneficial is that if you are diagnosed with a critical illness, your earnings can take a hit. A critical illness rider# will pay a lump sum amount to take care of the liabilities and the hospitalisation expenses.
Aside from purchasing term insurance for a home loan, another option that is available for borrowers to hedge their risk is by buying long-term home insurance. When you buy the latter, the sum assured lowers as the loan amount is paid through monthly instalments. In case of the policyholder’s premature death, the outstanding loan amount is paid to the bank.
Contrarily, for a term policy, the sum assured remains constant. This way, aside from the liability for the house, the family also receives a certain amount to manage their finances.
Here are a few reasons why a term policy outshines long-term home insurance:-
The premium for home insurance is higher as compared to term insurance which offers a high sum assured for a reasonable amount.
As mentioned, the coverage amount for home insurance reduces, leaving nothing after the home loan has been repaid. Contrarily, the sum assured for term insurance remains constant, providing financial security to your family in your absence.
The cover for home insurance cannot be changed upon extension of the home loan tenure, whereas a term plan is flexible and accommodates the financial needs at different stages in life.
Term insurance is a comprehensive financial protection that incorporates your monetary requirements at different stages in life. Tata AIA term plans offers varied coverage options that are sensitive to your financial goals, whether it is building a home or securing your family’s future.
While a home loan will ensure you have a roof over your head, a term plan promises financial security in distressing times.
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The products are underwritten by Tata AIA Life Insurance Company Ltd.
The plans are not a guaranteed issuance plan, and they will be subject to Company’s underwriting and acceptance.
For more details on risk factors, terms and conditions please read the sales brochure carefully before concluding a sale.
This blog is for information and illustrative purposes only and does not purport to any financial or investment services and do not offer or form part of any offer or recommendation. The information is not and should not be regarded as investment advice or as a recommendation regarding any particular security or course of action.
Please know the associated risks and the applicable charges, from your Insurance agent or the Intermediary or policy document issued by the insurance company.
Every effort is made to ensure that all information contained in this blog is accurate at the date of publication, however, the Tata AIA Life shall not have any liability for any damages of any kind (including but not limited to errors and omissions) whatsoever relating to this material.
#Riders are not mandatory and are available for a nominal extra cost. For more details on the benefits, premiums and exclusions under the riders please refer to the Rider Brochure or contact our Insurance Advisor or visit our nearest branch office.