Insurance helps secure one’s financial future. Among the popular types of insurance available today, term insurance tops the list. Whether you are just starting work, in your middle age with dependents, or older and preparing for retirement, you all need to know the importance of term insurance in loan and debt protection. This kind of insurance will ensure that your family receives a safety net. They are also saved from the burden of the financial consequences that arise after your passing.
Term Insurance: Knowing
It is essential to understand what term insurance is before talking about how it can protect debts. Term insurance is a form of life insurance that provides cover for a specific term, or period, which could be 10, 20, or 30 years. In the event the policyholder dies within that specific period, there would be a death benefit payable to the beneficiary.
Perhaps its most attractive characteristic is that term insurance is rather inexpensive. A person can achieve life insurance coverage with a very low premium for his or her entire life if such is guaranteed up to at least age eighty.
The Debt Puzzle: What Loans Do To Your Family Budget
We borrow loans for huge life events like buying a home, financing a college education or starting a business. Although they are important in terms of finance, loans do have their risks the most significant of which is that, in case of your untimely death, your family is left to deal with the loan repayment.
Now, if the loan covers your home loan, personal loans, and credit card debt running into several lakhs or even crores, it is the spouse, children, or other family members who will have to pay off the loan in case something happens to you. And that’s when term insurance comes to the rescue.
How Term Insurance Helps Pay Off Loan
Provides Financial Security to Family: Term insurance will, without any doubt play a most evident role in providing for your loan concerning providing a huge-sum payout at the time of death to the surviving family. From the proceeds of one’s term plan, that large-sum amount guarantees a painless payoff of the mortgage debt, automobile debts and business debts. They will then be able to pay for the mortgage and continue owning the property without facing foreclosure.
Comprehensive Coverage: Term insurance plans are flexible and suitable to the client’s needs as it is paid as a premium for a temporary period. When you are taking a loan, the sum assured can be changed according to the amount of the loan. For instance, when you plan to take a home loan of ₹50 lakhs, then you will take a term insurance policy wherein the coverage amount will be ₹50 lakh.
It can cover all kinds of loans: Term insurance is usually associated with mortgage loans, but it can also be used to safeguard against any other kind of debt. Whether it is a personal loan, a student loan, or a business loan, the death benefit of a term insurance policy can pay off any form of debt. Additionally, if the debt was obtained from a licensed money lender, the policy ensures that your family is not burdened with repayment. This will leave your family free to rebuild their lives because, without debt repayment pressure, they will not have to worry about how to clear the loans.
Prevents the Need for Family to Liquidate Assets: It will save the family from liquidating its assets. The family would have to sell off the properties, savings, or other investments they may have for paying off loans in case of no term insurance. This would then create ripple effects for a long time and may even affect future financial goals like the education of children or retirement savings. Your family will not be burdened to sell their assets so that they could pay for the remaining debt so that their finances will remain independent and stable.
Loan protection riders: Almost all the insurance companies apart from the basic one provide loan protection riders. These riders you may add to your term insurance cover and will help protect your loan liabilities. They are kind of protection where if you’re leaving behind certain outstanding loans then that’s especially helpful. Policies, for instance, sometimes may provide a rider to pay any outstanding balance for the mortgage and the personal loans, and these are paid back in case death comes your way.
Major Tax Benefits: the term insurance offers which are further also available if premium paid goes for tax deductions under section 80C of Income Tax Act of India; Death Benefit received by nominee(s) payable immediately after your unlucky death. Any such amount either would not incur the deduction of tax charge under u/s 10(10D). thus an efficient means to protect Loan as well as Loan liability, too.
Loan Protection through Term Insurance: Practical Illustration
We will try and understand with this practical example what value term insurance holds for protecting loans. Mr. Sharma, aged 40 years, a married person and having two kids. He owes ₹30 lakh in terms of his 25 years’ mortgage home loan, has personal loans of ₹5 lakhs as well. At the same time, he owed credit card amounts of ₹2 lakhs more. This compels Mr. Sharma to opt for the term insurance where he feels ₹ 40 lakhs would suffice to pay off all the remaining loans so his family’s economic base remains stable for a decent period of time after he is no more.
Sadly, deceased Mr. Sharma leaves this earth too soon for his heaven. He passes away leaving all his family back in this earth when he had just 45 years of young age. He left behind home loan, personal loan, as well as ₹40 lakh remaining outstanding credit card dues. So because of this term insurance all his wife’s and children dues get cleared entirely and they left debt-free without bothering about even loan repayment of that amount.
The Bottom Line:
Term insurance is not only a financial safety net for your family in case of your death but is also an extremely effective mechanism for loan and debt protection. Term insurance is available with customizable coverage, flexible options, and includes loan protection riders. Knowing the actual term insurance meaning and how it works will empower you to make an informed decision that will be beneficial for your family. It is a small investment with huge potential return in terms of peace and financial security at unknown times.
Such insurance is appropriate for anyone who wants protection for their family from financial results of debt and ensures that the loved ones will have the required resources in order to move ahead in a confidence-building manner in an unpredictable world.
