Becoming a new parent is not only a matter of great joy, but also that of great responsibility. Financial security of the newborn is a must from the very beginning to avoid any undesirable circumstances in future. This requires critical financial planning and maintaining a healthy financial portfolio.
Term insurance can help you cover extensive grounds in this respect. This is the purest form of life insurance, guaranteeing death benefits to the nominee or beneficiary on the death of the insured-cum-policyholder.
Why do new parents need term plans?
Term insurance is regarded as highly crucial for new parents for multiple reasons:
1. Financial security of the family:
This is the chief object of having a term plan. For new parents, this means that there are sufficient funds available for the future of the child for education, upbringing and handling other important events, even in your absence.
2. Debt management:
Many families undertake debts and loans for various reasons. With term plan proceeds, you can handle these outstanding debts easily. This will reduce the financial burden on your beloved family members during challenging circumstances.
3. Affordable premiums:
Term plans are one of the most cost-effective solutions among life plans. This is ideal for new families facing financial strains and requiring considerable coverage. The earlier you buy a term plan, the lower the premiums will be, allowing extensive coverage at a more budget-friendly rate.
4. Critical illness support:
Several term plans offer critical illness coverage riders. They offer a lump sum benefit on detection of any listed critical ailment, allowing you to handle the treatment and other associated costs well.
5. Educational goals:
Planning for a smooth educational future for your newborn should be the primary target of every parent. Term plans ensure that sufficient funds remain available to fulfil all the associated educational expenses in school, college, higher education, etc., irrespective of the financial status of the concerned parents.
6. Flexibility and adaptability:
Contemporary term plans offer adjustable coverage benefits and multiple rider options. You can choose them according to your needs and customise the basic plan to a considerable extent. Be it adjusting the terms of the plan or enhancing the coverage if you have more children, the term plan can evolve with your evolving and altering requirements.
7. Peace of mind:
Term insurance allows you to enjoy peace of mind, as you remain assured that your family members, especially your child, are financially secure even in your absence. Securing the future of the newborn is the primary target of every parent. A term insurance investment is a proactive approach towards your child’s financially secure future.
How to choose the right term plan?
The whole game lies in choosing the right term plan, which can prove to be challenging, especially for beginners. However, if you keep these tactics in mind, you can enjoy a smooth sail:
1. Determining the coverage amount:
You must determine the right coverage amount, ensuring that there is no dearth of funds in times of need. Consider your current financial status, number of dependent family members, outstanding loans, future financial goals, lifestyle choices, health status, etc., before deciding the coverage amount.
Pro tip: The thumb rule is to choose an amount that is equivalent to 10-15 times your current annual income. However, adjust according to your needs. You can consider opting for a 3-crore term insurance plan to be on the safe side.
2. Policy term:
Opt for a plan term that covers you at least until your child becomes financially independent or until your retirement. Planning for such a duration ensures that your family remains protected during the period when they mostly depend on your income.
3. Evaluation and comparison:
Compare and evaluate various competent plans to know what suits you the best. Watch out for factors like CSR, premium costs, coverage extent, credibility of the insurer, overall performance, customer service, etc.
4. Riders and flexibility:
Not all plans or insurers offer all sorts of riders or enhancements to the coverage limit. Consider these factors and the types of riders offered, like critical illness rider, accidental death benefit rider, etc. and then design your policy to proceed accordingly.
5. Claims process:
The ultimate goal of any insurance product is quick claim settlement. Ensure that your chosen insurance company maintains a transparent record in this aspect, with a long-standing, promising CSR of at least 90%.
6. Customer reviews:
Since first-hand experiences cannot be forged, always consider customer reviews to get a better insight of the overall performance of the insurer and fund concerned.
Choosing the nominee
Choosing the right nominee is very crucial as it ensures that the policy benefits can be correctly utilised for your child’s future.
1. Nominate the spouse:
It is best to nominate your spouse as he/she will be primarily responsible for handling the child.
2. Trust:
In case your child is too young, set up a reliable trust and name it as the nominee. You can specify the methods, time, and circumstances to utilise the plan proceeds.
3. Guardian:
In case your child is a minor as beneficiary, then appoint a guardian who will take care of your child’s behalf till he/she become an adult.
4. Legal guidance:
Try seeking professional legal help to ensure the correct nomination set-up for the best.
5. Update:
Update the nominee details as and when needed, and review the performance regularly. Make necessary additions and alterations as and when required.
Conclusion
Term insurance investment is a concrete step to ensure a secure financial future for the family, especially the child, for a new parent. It acts as a safeguard, ensuring the financial stability despite tough circumstances.