Term Insurance: Your First Step In Financial Planning

Financial planning must be at the heart of money management objectives of every individual. In order to reach a goal one needs to have a plan. When we think about the financial planning process, it is about securing the future lifestyle we intend to have.

Financial planning involves the appropriate administration of financial resources so as to structure a road map for the financial well being of the individual or his family. The factors to consider when deciding upon a future financial resource allocation road map are:
 

  • Risk appetite,
  • Future and current financial needs,
  • Future and current liabilities, incomes and assets.


Many people manage without a financial plan. However, more often than not they find that the steps involved in financial planning if properly followed will mean that they do not have to compromise on their goals for life.

The planning is meant to provide monetary support for the continuance of normal life inspite of reduction or loss of livelihood or a job. The same may occur:
 

  • After retirement.
  • Due to loss of job.
  • Due to death.


In the first two scenarios there are various options one may choose. However, the most critical situation is when the primary wage earner of the family is no more or dies. Hence, today many believe that a term insurance is the first step in financial planning for a prudent and hyperopic or far sighted investor.

The reason for the same is as follows:
 

  • It is a way of meeting regular payments such as EMIs or major capital draws such as marriages, higher education to ensure that family or dependents are monetarily taken care of even when the earning variable gets taken out of the equation.

 

  • Cost effective since the premium is only about a fraction of what would be the case in case of an ULIP, money back policy or even an endowment plan.

 

  • They allow one the flexibility of adequately providing for inflation as well as enhance the term period if need be. For instance, one should opt for flexible plans rather than fixed tenure plans since many today work beyond the standard age of 60.


The nominees should be properly decided such that financial independence is there maybe for the spouse or disabled child. Finally, one should not pay an unreasonable amount of premium since the premium is to cover the risk and no investment is involved and hence there are no returns till you are alive.

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