Am I too young at 34 to buy a term life insurance plan?

Ans: Buying a term plan is a crucial decision. With your CTC of Rs 16 lakhs and current expenses, securing your family’s future is essential. Let's assess whether a Rs 75 lakh or Rs 1 crore term plan is best for you.


It's commendable that you’re thinking about your family's future. Your proactive approach to financial planning is admirable.

Evaluating Your Financial Situation
Current Financial Commitments
Your monthly EMI is Rs 27,000. You also invest Rs 11,000 in a Recurring Deposit (RD) and Rs 5,000 in SIPs.

Monthly Income and Expenses
With a CTC of Rs 16 lakhs, your monthly income is around Rs 1.33 lakhs. After your EMI, RD, and SIP, you have around Rs 90,000 left for other expenses.

Importance of a Term Plan
Financial Security
A term plan ensures your family’s financial security in your absence. It helps cover loans, living expenses, and future goals.

Debt Repayment
Your current liabilities, including EMI, need coverage. A term plan ensures your family can repay these debts.

Determining the Right Coverage
Calculating Coverage Needs
Consider your outstanding debts, living expenses, and future goals. These factors help determine the right term plan amount.

Rs 75 Lakhs vs Rs 1 Crore
A Rs 1 crore term plan offers better coverage, considering your liabilities and income. It ensures a comfortable financial future for your family.

Advantages of a Higher Coverage
Better Financial Protection
Higher coverage ensures all debts and expenses are covered. Your family will not face financial hardship.

Inflation Protection
A Rs 1 crore plan provides better protection against inflation. Future expenses will be higher, and this coverage ensures adequacy.

Factors to Consider
Premium Affordability
Check the premium difference between Rs 75 lakhs and Rs 1 crore plans. Ensure the premium fits your budget without straining finances.

Coverage Duration
Choose a term that aligns with your financial goals. Ensure the term plan covers your liabilities and expenses until they're no longer needed.

Managing Your Existing Investments
Recurring Deposit (RD)
Your RD at Rs 11,000 per month is a stable, low-risk investment. It’s a good savings habit and provides guaranteed returns.

Systematic Investment Plan (SIP)
Your SIP of Rs 5,000 per month in mutual funds is excellent. SIPs offer the power of compounding and help build wealth over time.

Mutual Funds: A Deeper Look
Categories of Mutual Funds
Equity Funds: High growth potential, suitable for long-term goals.
Debt Funds: Lower risk, suitable for short-term goals.
Hybrid Funds: Balanced approach, combining equity and debt.
Advantages of Mutual Funds
Diversification: Reduces risk by spreading investments.
Professional Management: Fund managers handle investment decisions.
Liquidity: Easy to buy and sell.
Compounding: Reinvested returns grow over time.
Risks of Mutual Funds
Market Risk: Subject to market fluctuations.
Credit Risk: In debt funds, risk of default by issuers.
Interest Rate Risk: Affects debt funds, especially long-duration funds.
Disadvantages of Direct Funds
Self-Management
Direct funds require you to manage your investments. Without expertise, this can be challenging and risky.

Lack of Guidance
Without a Certified Financial Planner (CFP), you miss out on professional advice. This can affect your investment decisions and returns.

Benefits of Regular Funds through CFP
Professional Advice
CFPs provide tailored advice based on your financial goals and risk tolerance.

Better Returns
With professional management, regular funds can potentially offer better returns.

Power of Compounding
Regular Investments
Investing regularly through SIPs leverages compounding. Over time, this significantly enhances your returns.

Long-Term Benefits
Even small, regular investments grow substantially over the long term. This helps in achieving your financial goals.

Final Insights
Opting for a Rs 1 crore term plan provides better financial security. It ensures all your liabilities and future expenses are covered. Managing your existing investments in RD and SIPs is crucial. Consider the benefits of mutual funds and the importance of professional guidance. With the right strategy, you can secure your family's future and achieve your financial goals.

Best Regards,

K. Ramalingam, MBA, CFP

Chief Financial Planner

www.holisticinvestment.in

Ans: Hello;

You may compare policies as offered by different insurers as per your requirement, online, on web aggregator platforms like policybazaar, insurancedekho, policyx, turtlemint etc.

Or else you may visit individual insurer's website to study their product features but this can be cumbersome.

Another option is to seek help from an insurance advisor.

Almost all big companies offer term plans that can meet your requirements. For eg SBI Life e-shield next, HDFC life click to protect super, ICICI Pru life iprotect super, LIC new jeevan amar term plan etc.

Best wishes;

Ans: You are 42 years old and employed in the government sector.

Your wife is 35 years old and does not work.

Your son is 8 years old and has many years of schooling ahead.

You earn around Rs 9,50,000 per year.

You want to secure your family’s financial future.

You also want to invest smartly and ensure better returns.

About Term Insurance

Term insurance is a pure risk cover.

It does not give any return on maturity.

It only pays the death benefit to your nominee if you pass away during the term.

This amount can help your family live well.

It can cover their needs like schooling, marriage, and home.

No Returns from Term Insurance

Term insurance does not give any guaranteed return.

It is like renting an umbrella for rainy days.

When it does not rain, you return the umbrella.

So, you pay a premium for protection only.

Do not look at term insurance for guaranteed maximum return.

Don’t Mix Insurance and Investment

Mixing insurance with investment is not wise.

Term insurance is best for protection.

If you want returns, look at mutual funds or other investment plans.

Avoid plans like endowment, ULIP, or traditional policies.

They give low returns and have high costs.

How to Choose the Best Term Plan

Look at the claim settlement ratio of the insurer.

It shows how many claims are paid versus claims received.

Higher ratio means better trust.

Choose an insurer with at least 97-98% claim settlement ratio.

Check the Financial Strength of Insurer

Look at the solvency ratio of the company.

This ratio shows the insurer’s ability to pay claims.

IRDAI requires minimum solvency ratio of 1.5.

Choose an insurer with a higher ratio for better safety.

Look at the Features of the Policy

Check the policy term you need.

Many insurers offer term up to age 70-80.

See if you want increasing cover or fixed cover.

Fixed cover is usually cheaper and easy to understand.

Check Premium Payment Options

Some insurers offer single, regular, or limited payment options.

For you, regular premium payment is better.

It will be easy on your cash flow.

Check for Additional Riders

Riders are like extra covers on top of basic term plan.

Examples are accidental death rider or critical illness rider.

Riders can give extra money if accident or illness happens.

They are cheaper when added to term plans than buying separately.

Check for Ease of Buying and Claiming

Check if the insurer has simple online buying process.

Check if claim process is fast and clear.

Some insurers promise claim settlement within 24 hours.

Review the Premium Affordability

Premium must be easy for you to pay every year.

Don’t take very high cover that burdens your budget.

Balance between cover needed and premium you can pay.

About Your Current Income

You earn around Rs 9,50,000 per year.

Your premium should not exceed 2-3% of income.

For Rs 1 crore cover, premium will be low, around Rs 12,000-15,000 yearly.

Evaluate the Insurer’s Track Record

Look at how long the insurer has been in business.

Older companies have more experience and stable systems.

It is better to go with trusted names.

Your Family’s Financial Future

If you pass away, your wife and son will depend on this money.

It should be enough for their daily needs and future goals.

For your son’s education and marriage, Rs 1 crore can give a good start.

Tax Benefits of Term Insurance

Premium you pay gets tax benefit under section 80C.

This helps you save up to Rs 1,50,000 in taxes.

The death benefit received by family is fully tax-free under section 10(10D).

What Should You Do for Investments?

Since term insurance does not give returns, plan separate investments.

You can invest in mutual funds for long-term goals.

Mutual funds give better growth than traditional insurance plans.

Actively Managed Mutual Funds – A Better Choice

Actively managed mutual funds are run by expert fund managers.

They pick good stocks and manage risks better.

These funds can beat the market and give better returns.

They are better than index funds which only copy the market.

Index funds don’t change if market falls. They have no active hand-holding.

Your investment will just follow the index, no protection in down market.

In actively managed funds, managers keep watch on the market.

They adjust the portfolio for better performance.

So, for long-term goals like your son’s education or retirement, actively managed funds are best.

Why Not Direct Funds?

Direct mutual funds have lower expense ratio.

But they need your own expertise to track, review, and switch if needed.

Many investors don’t have time or knowledge to track funds.

Wrong fund selection can hurt returns.

Regular plans through a Mutual Fund Distributor with Certified Financial Planner help you.

You get expert help to choose best funds for your needs.

CFP can help you adjust funds when needed to stay on track.

What to Avoid

Don’t mix insurance and investment.

Avoid endowment and ULIP plans as they give low returns and high costs.

Don’t put money in schemes that promise guaranteed returns along with insurance. These are usually low yield and inflexible.

Building a Strong Financial Plan

You should have an emergency fund equal to 6-12 months of expenses.

This fund will help you manage sudden needs.

Keep it in a liquid fund or bank FD for safety.

Health Insurance for Family

You should take a separate health insurance for family.

This will help you cover medical costs without stress.

Health costs are rising fast, so health cover is a must.

Your Retirement Planning

Start investing in equity mutual funds for your retirement.

They give better growth in long term.

SIP is a good way to invest small amounts regularly.

You can increase SIP amount as income grows.

For Your Son’s Education

Start a separate SIP in equity mutual funds for your son’s education.

He is 8 years old. You have 10 years to save.

Equity funds will help you beat inflation.

Use a goal-based plan to track this investment.

Avoid Real Estate for Now

Real estate needs big money and has low liquidity.

It also has risks like legal disputes and low rental yield.

It is better to focus on mutual funds and other assets.

Protecting Your Family’s Future

Keep all insurance and investment documents in one file.

Tell your wife about where documents are kept.

Make a will to avoid future disputes.

Will makes sure money goes to right people easily.

Finally

Term insurance will give your family protection.

But do not expect returns from it.

For returns, invest separately in mutual funds.

Start SIPs for long term goals like son’s education and retirement.

Take health cover for family.

Keep an emergency fund for safety.

Review your plan every year with a Certified Financial Planner.

With small steps, you will create a strong financial future.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in
https://www.youtube.com/@HolisticInvestment