When it comes to financial planning, many of us focus mainly on investments. Insurance portfolios do not always get as much importance.
This is surprising because getting your insurance portfolio right is even more important than getting your investment portfolio right.
If you go wrong with your investment portfolio, you can still take corrective action and make amends. However, if you go wrong with your insurance portfolio, you may not get a second chance. You may not be around to rectify those mistakes.
Talking about life insurance, purchasing adequate life insurance cover and the right kind of life cover is extremely important. A Term Life Insurance Plan is the cheapest way to purchase life insurance.
Strange as it may sound, even term life insurance plans come in multiple variants. So you need to choose the right variant too.
For instance, Edelweiss Tokio MyLife+ comes in multiple pay-out options i.e. lump sum, monthly income or you can choose a combination of the two.
A few Riders can add value too
There are multiple riders that you can add to the base term plan at an additional cost i.e. accidental disability, accidental death or waiver of premium riders.
Accidental disability rider deserves special mention because the threat to your finances does not just come from an untimely demise or a prolonged hospitalization.
What if you get disabled in an accident and such disability compromises your ability to earn?
Your life cover will not come to rescue since you are still alive and health insurance cover will only cover hospitalization expenses.
What about the loss of income due to disability?
There is where an Accidental Disability rider adds value. It can provide you a lump sum even in case of total and permanent disability due to an accident.
Choice of Payouts
Let’s assume you purchase a life cover of Rs 50 lacs under the aforementioned plan from Edelweiss Tokio.
Under Lump sum option, your family will be given Rs 50 lacs lump sum in the event of your demise.
Under Monthly Income Option: You family will get Rs 50,000 per month for the next 130 months.
Under Combination of lump sum and Income option: Let’s say you choose Rs 25 lacs each for the two options. Your family will get Rs 25 lacs lump sum and Rs 25,000 per month over the next 130 months.
Which one to choose?
It depends on your liabilities and financial responsibility towards your family.
If you have just the home loan liability to be taken care of, it is better to go for lump sum payout. Additionally, if you feel your family can easily manage lump sum amount, you should go for lump sum option.
If you want to ensure that the family gets regular monthly income for the fixed number of years, monthly income is a better option. Monthly income will also be a good choice if you feel your family may not be able to manage lump sum amount properly.
If you want to ensure both, a combination of lump sum and monthly payout will be a good choice.
With life insurance, it is acceptable even if you do not make the most optimal choice. You must make choices that your family can easily understand and implement.
Purchasing life insurance is not just about your tax-saving needs. It is about the needs of your family and the quality of life you want for your family, irrespective of whether you are around.