Should Term Insurance Come Before Investments?

The first paycheque, no matter how small, puts your faith back on the pedestal that yes you can make it happen in time. It also brings about a lot of excitement, expectations and a fog of confusion about the things you should do with it. Being a finite amount, unlike your aspirations, the cheque limits your options.

Therefore, you must prioritise. In summary, you only have three choices with this money:

• Spend it on something you always wanted
• Invest it for a higher amount in future
• Secure insurance like health and life insurance plans

Your journey has just begun into the financial world, and we are here to help you set your priorities straight.

Priorities in the Financial World

Provided that your primary role is not of an investment manager, you will not need to know the nitty-gritty of every investment plan. However, you do need to know how to prioritise your outflows so that you can have a prosperous and comfortable financial future.

The first part is the relation between your current income and your future wealth, i.e. Your current savings are proportional to your future wealth. In this scenario, the only real choice you have is about your present expenses. The more controlled your current expenses, the higher your savings will be, and so on.

The second part is about what to do with your savings. So, here’s your financial needs pyramid:

The priority starts at the bottom. That is the foundational level, and as your surplus increases so does your choice of investment avenues.

Life’s Uncertainties & Life Insurance

As per this pyramid, you need to start with contingency planning; i.e. securing yourself against the uncertainties of life. You can transfer the risk of the financial burden for some of these uncertainties while others you will need to bear.

Here’s a list of uncertain and financially taxing situations and how you can survive them:

• Sudden hospitalisation: Health Insurance
• Death or disability (including temporary loss of physical functions) due to an accident: Accidental Insurance
• Diagnosis of a terminal illness: Critical health insurance
• Death due to any other reason: Term life insurance
• Loss of employment and income: Build an emergency fund pool

So, out of your first paycheque, the saved money should be directed towards insurance first, then towards the emergency fund. The size of this emergency fund can be anywhere between three to six months of your income.

Once your emergency fund pool is ready and all insurance plans are in place, you can start planning for your long-term goals.

How to Buy a Term Insurance?

You can buy the term insurance cover completely online. All you need to do is use the online term plan calculator to check your term insurance need and calculate your premium. The part where you need to be thoughtful is while selecting the benefits under the plan.

So, here you will need to know a little about the plan, what it covers and how it works. You might have to make the following choices –

• Easily fits in your Monthly Budget: One of the key reasons to invest in term insurance is the affordability of the plan. Term insurance is a more cost-effective plan to provide adequate financial cover to your family.
• Adequate Financial Support for Your Family: With a term insurance plan, the nominee(s) can have adequate financial support for the family after the insurer's death. It offers you the highest death benefit with a nominal premium. The best part with term insurance is you can fool proof your contingency plan with additional covers.
• Zero Stress for Family’s Income after Death: Usually, generic term insurance would pay a lump-sum amount to your nominee. The right term insurance plan can help you plan your family’s future in your absence. It makes life easy for your family by first, making timely claim settlements and by offering you options to convert a part of the total sum assured to regular income for the nominee, disbursed as a monthly amount.
• Zero Payment after Retirement: If you opt for a longer coverage tenure stretching beyond retirement, you can choose to pay all the premiums within a short period of time. With the limited pay option, you can stop paying the premiums much before retirement and continue the cover.
• Covers Your Spouse Too: It is easy to see the financial contribution of earning spouse to the family. But the non-earning spouse also contributes a lot to the family. Thus, the best term insurance plans not only cover the earning member of the family but also the non-earning one. The term insurance also gives you the option of joint cover.
• Upgrade the Cover as You Progress in Life: As life progresses, your financial earning also increase. A majority of life insurance plans offer a good amount of additional benefits. These are also called riders. You can upgrade with covers like critical illness coverage, accidental coverage, and return of premium.

You should select a policy term which at least covers your life until your retirement. However, given the present employment scenarios, a little longer cover would be better. Although, in any circumstance try to keep your premium payment term only up to 60.

Once you have selected all these options, you will see your premium. You can change the frequency of premium payment to check the amount with your preferred mode of payment

Complete the Application Form

Premium calculation is just the beginning of the term insurance purchase process. After you are satisfied with the estimated premium amount and benefits, go ahead and pay the premium. After successful payment, you will need to fill the proposal form.

Try to provide as accurate information as possible and attach related proofs and documents as asked. After you have submitted the application form and documents, you may receive the appointment options for a medical check-up at a nearby clinic.

This is a necessary step to avoid any complication in case of a claim. The insurer may take a few days to issue the policy after your medical exam.