When we talk of protection, a lot of things may come to the mind. For example, security systems, police, air-bags, seatbelts, CCTV cameras and what not. But in this case, we are referring to the ‘financial protection of your family.’ When we talk about financial protection of the family, there is one instrument that stands out, and that is ‘term insurance’.
However, it has always been a question, ‘how much is enough?’ with term insurance plans. While insurers limit maximum term insurance need of an individual to about 20 times of their annual income, it may only take care of the family’s lifestyle. Whether it’ll take care of other needs, you need to figure out.
But, first which needs (or goals) should your term insurance cover?
We all have goals in life, and these goals differ. They may not be the same for each and every individual. We have short-term goals as well as long-term goals to achieve in our lives. We start off with the primary goals and then keep moving to the luxury. And hence, the demand goes on.
The Three Types of Transactions
There are three types of financial transactions in one’s life. We start off with the needs, move on to our goals and then to our aspirations.
– Needs are the necessities of life which include our regular survival expenses.
– Moving towards the goals, they are the needs but not the immediate ones. However, you may require a big sum of money to meet your goals. For example, educational expenses, marriage expenses, etc.
– The third one being aspirations, they are the ones that we look up to only when the first two are fulfilled. These are the luxury needs such as buying a car, going on a vacation trip, etc.
While the aspirations are something we can compromise on, the needs and the goals require attention. Hence, we need protection for our needs as well as the goals. To make sure one is financially stable to achieve them in any circumstance, we end up taking term insurance plans.
Prioritising your goals
While we know all our needs and goals are imperative, one needs to make a choice by prioritising their goals. For example, compare your financial goals for investing in your child’s education and your child’s marriage. What would be your priority? While the priorities may be different to different people, the top priorities definitely need protection. Another example will be deciding if you want to achieve your retirement goals or pay your credit card bills. While debt can trap easily, payment of the credit card bills become essential. What is the type of goals that we should prioritise protecting with insurance? Let’s find out!
What goals need protection?
Retirement goals
Retirement is one of the most important life goals. In fact, nowadays, people have started defining retirement not as a period of unemployment but as a period of passionate employment or early retirement. However, even this goal requires large sum of money to look after your household while you build your profession from scratch.
Protecting this goal is important, as your dependents future will be affected if anything happens to you before you could fulfil the retirement goal. Thus, it should be a part of your term insurance cover.
Kids’ education
Future is uncertain. One certainly does not want to keep their kids from gaining education just because of the unfortunate instances. Thus, protecting your kids’ higher education goal with the term insurance makes more sense.
Home ownership
Have you taken a new house? Are the loan instalments still pending? Again, we do not aim to put a financial burden on our family at any point in time. Thus, term insurance is the best way to protect your home ownership and loan payments in case you aren’t there to make repayments. Term insurance until the entire loan is repaid, or the renovations are complete is a priority one should make in life.
What does not require protection?
Certain transactions do not require protection necessarily. However, additional money and the ability to protect the same can definitely help you stay safe. It is majorly the luxury that we demand do not require protection. For example, if you buy a second home simply to make an investment and already have your family settled in the first one, then insurance is not necessary. Another example of luxury is your vacation trips. They do not require term insurance to cover the uncertainties.
When we consider purchasing the luxury goods after reviewing all our expenses, we end up being too careful about the same.
For example, if you buy a house, you probably take a loan. While you have a loan to repay for a certain number of years, consider increasing your term insurance cover to avoid a financial burden on your family.
You can also add riders to your base term cover to protect yourself from other risks, such as accident, disability and life-threatening diseases.
