Indian households' financial planning has evolved significantly in recent years, especially as more young professionals have started professional careers. As they prioritize career growth, financial independence, and wealth accumulation, it is important to have diversified financial instruments. One of the best instruments is a term insurance policy.
Let us understand what term insurance is and why it is important for a young professional in India.
What is Term Insurance and its Benefits?
Among various types available in the market, term insurance is the most basic form of life insurance. In this insurance, the policyholder pays a fixed premium for a specific term. In case of the policyholder’s untimely death during the policy term, the nominee receives a lump sum amount or sum assured.
Its primary purpose is to provide financial security to the family in the event of the policyholder’s death. This financial security ensures that dependents are not left with financial burdens in their absence.
Here are the various benefits of having a term insurance plan:
Simplicity
Usually, insurance products can have complex terms and conditions, however, term insurance is simple to understand and easy to manage. There are no additional features such as investment components or savings plans, which can often complicate the decision-making process. For young professionals who may not yet be well-versed in financial products, term insurance offers an uncomplicated way to provide financial protection.
Flexibility
Term insurance policies are flexible. They can be customized to meet individual needs, whether it is for a specific tenure, sum assured, or optional riders like accidental death coverage or critical illness coverage. This flexibility makes it an ideal choice for young professionals with dynamic needs who want to tailor their financial planning.
Affordability and Cost-effectiveness
One of the main attractions of term insurance for young professionals is its affordability. When purchased early in life, term insurance premiums are relatively low. This is primarily because the younger and healthier an individual is, the lower the risk of premature death and, consequently, the lower the premium.
By locking in low premiums early on, individuals can secure substantial life coverage at a fraction of the cost they would pay if they opt for term insurance later in life. Platforms like Policybazaar make this even easier by offering a wide range of affordable term insurance plans
Protecting Dependents and Family
While many young professionals may not yet have dependents or significant financial responsibilities, life is unpredictable. Early financial planning, including purchasing term insurance, ensures that unforeseen events, such as an accidental death, do not lead to financial hardship for loved ones. This protection is especially important for individuals with loans or other financial obligations. In this way, term insurance is a tool to ensure that family members are not left vulnerable if something happens to the primary earner.
Tax Benefits
Under Section 80C of the Income Tax Act, premiums paid towards a life insurance policy are eligible for a tax deduction of up to ₹1.5 lakh annually. This can result in substantial savings for young professionals looking to reduce their taxable income.
Additionally, the death benefit received by the nominee is tax-free under Section 10(10D), which further adds to the appeal of term insurance. These tax incentives make term insurance a tool for financial protection and an effective way to manage one’s tax liabilities.
Building a Financial Safety Net
As young professionals progress, their financial obligations and responsibilities typically increase. However, life is unpredictable, and securing term insurance early ensures one’s family is protected, regardless of what lies ahead.
Moreover, purchasing term insurance early helps realise a sense of financial responsibility and discipline. It encourages individuals to think beyond the present and plan for the future, understanding the value of securing their loved ones’ financial well-being.
5 Life Situations When Term Insurance Will Be Important for a Young Professional
1. Starting a Family
When starting a family, term insurance ensures that your loved ones are financially protected, covering daily expenses and long-term commitments like education if, unfortunately, you’re no longer around.
2. Taking a Loan
Term insurance helps clear outstanding loans (e.g., home, car, or personal loans) in case of your death, preventing your family from bearing the burden.
3. Supporting Ageing Parents
If you financially support ageing parents, term insurance guarantees they will have financial stability even if you're no longer there to provide for them.
4. Building a Business
For entrepreneurs or professionals with high-stakes careers, term insurance secures your family’s future and ensures your business can continue if you're not there.
5. Income Replacement in Case of Disability
Riders like critical illness benefits or income replacement in term insurance ensure financial support if you cannot work due to illness or disability.
Final Thoughts
A term insurance plan is a vital part of every young professional’s financial plan in India. Its real value lies in the security and peace of mind it provides for the future. By securing a term insurance policy, young professionals take a responsible step in safeguarding their family’s financial well-being, ensuring that unforeseen events do not derail the plans they've built.
(The views, opinions, and claims in this article are solely those of the author’s and do not represent the editorial stance of The Assam Tribune)