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Why Should New Parents Buy Term Life Insurance?

Tax planning involves strategic financial decisions aimed at minimizing tax liabilities by optimizing deductions, credits, and exemptions.

  • 3,168 Views | Updated on: May 31, 2024

As new parents, you have the responsibility of providing for your child’s well-being. Buying term insurance is one of the best ways of securing your child’s financial future. In the event of your untimely demise, a term insurance policy ensures that your dependents receive a lump sum amount (sum assured), providing financial security and helping them maintain their standard of living.

Today, in the purview of rising inflation, it can be challenging for new parents to maintain the lifestyle of the family members, especially if they are the only earning members. In times like these, term insurance is handy and gives your family much-needed financial security. As a parent, one of the most vital securities and gifts you can give your child is assuring their financial security.

Why is Term Insurance a Necessity for all New Parents?

Term insurance is vital for all new parents. As a parent, you would want to secure the future of your child. Buying term insurance is the risk-free and affordable way to accomplish it. The term plan ensures that your child gets financial security in an unfortunate event.

The fact that a term insurance policy offers guaranteed security by paying a death benefit to the dependent family members increases its credibility. When you invest in a term plan, you can rest assured that your child’s future is secured. Also, you need not burn a deep hole in your pocket or change your current lifestyle to buy these plans.

To make the most out of the term plan, it is better to purchase it in the early stages of parenthood as the premium is much cheaper. Today, as most insurance companies offer digital services, you can easily buy a policy online. You can also compare the different policies from insurers and choose the one that suits your specific needs and fits your budget.

Benefits of Buying a Term Insurance Plan

Apart from providing financial security, there is a lot that a term insurance plan can give you. Let us take a quick look at the advantages of buying a term plan:

Provides Financial Security for your Children

If you were to pass away unexpectedly, the death benefit from your term life insurance policy could help your children cover their living expenses, education costs, and other important needs. It can help ensure that they are not financially burdened during a difficult time.

Helps your Spouse Maintain their Lifestyle

If you are the primary breadwinner in your family, your spouse may face financial hardship if you were to die. A term life insurance policy can provide them with the financial resources they need to maintain their lifestyle and continue caring for children.

Pays Off Debts

If you have outstanding debts, such as a mortgage or car loan, a term life insurance policy can help your spouse or other beneficiaries pay them off. This can help them avoid financial stress and free up additional money to cover other expenses.

Riders for Enhanced Coverage

Many term insurance plans offer additional riders or add-ons, such as critical illness rider, accidental death rider, or waiver of premium rider. These riders provide extra coverage in specific situations, enhancing the overall protection offered by the policy.

Tax Benefits

Premiums paid towards a term insurance plan are eligible for tax benefits up to ₹1.5 lakhs under Section 80C of the Income Tax Act. Additionally, the death benefit received by the nominee is tax-free under Section 10(10D).

Important Considerations While Buying a Term Plan As New Parents

Buying a term plan is an essential step to secure the financial future of your family. Here are some important considerations to keep in mind while purchasing a term plan as new parents:

Coverage Amount (Sum Assured)

Calculate the financial needs of your family, including future expenses like education, marriage, and day-to-day living costs. Ensure the sum assured is sufficient to cover these expenses and provide financial security for your dependents.

Policy Duration

Choose a policy duration that aligns with your financial goals and the time until your dependents become financially independent. Some policies offer coverage up to a certain age, while others may have a fixed tenure.

Affordability

Assess your budget and choose a premium that you can comfortably afford throughout the policy tenure. Consider any potential changes in your financial situation and opt for a premium payment plan that suits your cash flow.

Riders and Add-Ons

Evaluate additional riders or add-ons such as critical illness, accidental death, or disability riders to enhance the coverage based on your specific needs. Understand the terms and conditions associated with these riders and assess their relevance to your family’s situation.

Claim Settlement Ratio

Research and choose an insurance provider with a high claim settlement ratio. This indicates the percentage of claims settled by the insurer, reflecting their reliability in fulfilling their commitments.

Exclusions and Terms

Understand the exclusions and terms of the policy to ensure that you are aware of situations in which the insurance may not provide coverage. Be transparent and accurate in providing information during the application process to avoid complications during claims.

Wrapping Up

Providing financial security for your child is a decision you must take as a parent. Term insurance can be the stepping stone of this journey and is a necessity for all new parents. It serves as a foundational element in securing the financial future of their family, ensuring that their loved ones are protected in case of unforeseen circumstances.

Key Takeaways

  • Term insurance is highlighted as a vital tool for providing much-needed financial security for new parents.
  • Purchasing term insurance early in parenthood is recommended, as premiums are more affordable during this stage.
  • Premiums paid towards term insurance plans are eligible for tax benefits under Section 80C of the Income Tax Act, up to ₹1.5 lakhs.
  • Sum assured), policy duration, affordability, and the consideration of future family expenses should be considered before buying a term plan.

- A Consumer Education Initiative series by Kotak Life

Amit Raje
Written By :
Amit Raje

Amit Raje is an experienced marketer who has worked in various Fintechs and leading Financial companies in India. With focused experience in Digital, Amit has pioneered multiple digital commerce in India. Now, close to two decades later, he is the vice president and head of the D2C business department. He masters the skill of strategic management, also being certified in it from IIMA. He has challenged his challenges and contributed his efforts in this journey of digital transformation.

Amit Raje
Reviewed By :
Prasad Pimple

Prasad Pimple has a decade-long experience in the Life insurance sector and as EVP, Kotak Life heads Digital Business. He is responsible for developing user friendly product journeys, creating consumer awareness and helping consumers in identifying need for life insurance solutions. He has 20+ years of experience in creating and building business verticals across Insurance, Telecom and Banking sectors

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