For many parents, nothing is more important than their children. Ensuring a child’s well-being is a parent’s top priority. This responsibility becomes even greater when you are a single parent. To keep children financially secure, many parents opt for a term plan. Before we get into the advantages, let’s understand what a term insurance plan is.
What is term insurance?
Whenever we talk about insurance, we are talking about financial security. A term plan provides the same. If an unfortunate incident occurs to you during the period of the policy, term insurance can assist the family financially.
Furthermore, since yearly premiums are fixed, it is always more advantageous to invest in it early, when premiums could be lower.
Let’s look at some benefits of a term insurance plan:
- A major advantage of these plans is that they offer a higher sum assured at a reasonable price. In most cases, the premium will only be about 0.1% of the sum assured.
- When claiming payouts or paying premiums, income tax benefits can be obtained, such as under section 80C. In the old tax regime, both premiums and payout come with tax benefits but in the new tax regime, the insured sum is tax-exempt at maturity but premiums paid have no tax benefits.
- Moreover, these plans are flexible. For instance, the insured can add riders and enhance the benefits.
Term insurance plans for single parents
A person’s insurance plan should be based on assessing their financial situation, debts, and plans for the future, and thereafter, finding the most appropriate plan. Here are a few things a single parent could consider before they commit to term insurance:
- Annual income
- To buy a term plan, one of the most important questions individuals need to ask themselves is: How much do they earn annually?
- As per experts, individuals must have a life insurance policy that provides for at least six times their annual income. The purpose is to ensure that in the event of their untimely demise, the family will have some level of financial protection.
- The premiums also depend on annual income. The amount a person can afford to pay for their premiums as well as if they can do that consistently are important factors. Since term insurance plans are only based on timely premium payments, it is vital to carefully review this aspect.
- Most insurance companies have an online term insurance plan calculator that lets you determine how much you will have to pay for a specific insurance plan.
- In assessing a person’s financial situation, debts must be considered. People often take out loans to pay for living arrangements or to cover day-to-day costs. Nevertheless, if the insured passes away unexpectedly, the burden of the same should also not fall on the family. For this purpose, a long-term term insurance coverage that will pay off all debts promptly without burdening the family should be obtained.
- A child’s financial needs
- A single parent should consider two things when it comes to their child: selecting the right beneficiary and leaving the child with ample financial support. Typically, when we discuss a child’s financial needs, we refer to their living arrangements, daily expenses, education, and any medical costs. When purchasing a term plan, all these factors need to be considered.
- In addition to these factors, it is also important to factor in inflation since what costs today won’t cost the same in the future.
- A rider can be purchased to cover accident, disability, or critical illness in the future. They are an additional level of coverage that can be added to a term insurance plan at a nominal cost. Thus, these will also increase the term insurance plan premium amount.
Providing financial stability is one of the most important responsibilities of parents. The market offers a variety of term insurance policies today. Therefore, individuals must be careful when choosing an insurer. In addition to considering the above factors, individuals should research the insurer’s reputation and the claim settlement ratio and pick one accordingly.