Becoming a parent is a unique experience. The addition of a new member to your family leads to new learning experiences, memories, and, importantly, more responsibility. The finances that may have been utilised for two would now be used for the expenses of three people. And it is not just the present that you have to take care of; it is also the future of your little one. You would want to make sure that they are taken care of in the future, especially if anything unfortunate were to happen to you. And what better way to ensure that than to buy a term plan?
Buying term insurance as a new parent may require a bit of a different approach than usual.
How does a term plan work?
You should know how a regular term insurance plan works before you begin. When you buy a term plan, you pay premiums either in a lump sum or in instalments over a particular duration. This premium ensures the continuance of the policy and makes sure that the life cover keeps building up. If you suffer an untimely demise during this period, your child and other loved ones receive financial compensation (known as the sum assured). The premium of a term plan differs on various basis. A term plan premium calculator can help you get an estimate of the premium that you will incur based on your variables specifically.
Things to remember when buying term insurance as a new parent
- Remember to take care of inflation
When securing the future finances of your child, it is prudent to remember that the prices of daily items and regular expenses are only going to increase in the coming years due to the rate of inflation. So, what you may want to do is to take a look at the inflation rates of the previous decade or so to understand these trends better. Once you have an idea of how much inflation might occur by the time your child is, let’s say, 18 years old, you can create a sum assured amount accordingly.
One out of the many excellent term insurance benefits is the option to go for a increasing term insurance wherein you can increase the sum assured amount at pre-determined rates. This will also help deal with the issue of inflation in an effective way.
- Take your child’s aspirations into consideration
Your child may be small now, but there may already be some plans that you have for them. You may want them to pursue their education in the best of universities, follow their passions, go ahead in the career of their choice, and so on. An easy flow of funds ensures a higher likelihood of these things. Therefore, when you buy a term plan, remember to keep these aspirations in mind as you choose the sum assured and tenure. Even if you are no longer present to support your child in their higher education, your prior financial planning surely is.
- Consider pairing term insurance with a child insurance plan
Child insurance plans are designed to cater to the financial needs of children as they grow older. Though it may differ from insurer to insurer, child insurance plans usually mature when the child insured under the plan reaches a particular age. You can curate these plans to end at a vital point in your child’s future, such as the beginning of their higher education or the start of their career.
- Consider opting for additional protection
Your child’s future may also be put in jeopardy if you were to get diagnosed with a critical illness or suffer a permanent disability due to an accident. The flow of regular income may stop, leading to financial problems in the home. Therefore, you should consider opting for riders. A term plan premium calculator can be used to understand the hike in the premium after the addition of riders.
If you are diagnosed with a serious illness such as cancer, the critical illness insurance rider provides a lump sum pay-out. Similarly, with the accidental permanent disability rider, the insured person receives a hefty pay-out after suffering disabilities due to an accident covered in the policy.
It is also advisable to buy term insurance after thorough planning of current and future finances. A consultation with a finance expert might help. We hope these tips help you make the most of the term insurance benefits on offer.