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Systematic Investment Plans (SIPs) have become a popular investment tool, offering a disciplined and consistent approach to wealth creation. However, alongside the goal of building a financial corpus, it is crucial to protect your loved ones in case of unforeseen circumstances.
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This is where term insurance becomes relevant for SIP investors, providing a reliable safety net without affecting your investment goals.
Term insurance is a simple type of life insurance that provides financial protection for a specific term or duration. In the event of the policyholder's unfortunate demise during the policy term, the nominee receives a lump sum amount, which can cover future expenses, debts, or help maintain the family's lifestyle.
For SIP investors, term insurance can serve as a complementary tool to ensure that their investment goals are not derailed due to unforeseen eventualities like death, disability, or illnesses.
Term Plans
Protection Against Financial Risk: While SIP investments help you build wealth over time, term insurance protects your family from financial burdens in case of your untimely death. Even if your SIP investments are on track, the lack of life coverage can leave your dependents vulnerable.
Complements Long-term Financial Planning: SIP investment plans often serve a long term purpose of wealth creation. However, uncertainties like job loss, illness, or death can affect your ability to continue SIP contributions. Term insurance steps in to provide a financial cushion for your family, ensuring that their future is secure despite the circumstances.
Affordable Premiums: Term insurance is one of the most affordable ways to secure life coverage. For SIP investors, this means you can continue your regular investments while paying a small premium to ensure financial protection for your family.
Tax Saving Benefits: With term insurance for SIP investors you can save on your yearly taxes as per the prevailing tax laws under sections 80C and 10(10D) of the Income Tax Act, 1961. However, it is suggested that you consult your tax advisor for more accurate term insurance tax benefits applicable for your profile.
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Safeguard Investment Goals: SIPs are designed to help you achieve financial goals like buying a home, funding your child's education, or retirement planning. In case of an untimely death, term insurance ensures that these goals remain intact by providing a lump sum payout, enabling your family to meet these future needs.
Debt Protection: Many SIP investors may also have liabilities like home loans, car loans, or personal loans. Term insurance can help settle outstanding debts, ensuring that your family doesn’t have to liquidate your SIP investments prematurely to clear financial obligations.
Peace of Mind: Knowing that your family's financial future is secure allows you to focus on your SIP investments with confidence. This peace of mind ensures that your long-term wealth creation continues uninterrupted, even in the event of life's uncertainties.
Adequate Coverage: It’s important to assess how much life insurance coverage your family will need in case of your absence. A general rule of thumb is to opt for coverage that is at least 10 – 15 times your annual income.
Policy Term: The policy term should ideally align with your investment goals. If your SIPs are set for a 20-year horizon, choose a term insurance policy that provides coverage for the same duration.
Affordable Premiums: Since SIP investors focus on disciplined savings, term insurance with affordable premiums is a good fit. Look for policies that offer high coverage at a low cost to maintain the balance between protection and investment.
Some mutual funds offer SIPs with insurance cover. While these might seem convenient, there are limitations:
Limited Coverage: SIP-linked insurance generally offers lower coverage compared to standalone term insurance. This might not be sufficient to cover all of your family's financial needs in case of your demise.
Coverage Tied to Investment: In SIP-insurance plans, the insurance coverage is often tied to the SIP. If you stop your SIP contributions, the insurance cover also stops. With a standalone term insurance policy, your coverage remains intact, independent of your investment activities.
No Flexibility: Term insurance allows you to customize coverage based on your financial goals, liabilities, and lifestyle. SIP-linked insurance may not offer the same level of flexibility.
For SIP investors, term insurance provides an additional layer of security, ensuring that your family remains financially protected while you work toward your investment goals. It’s a simple and cost-effective way to secure your loved ones and ensure that your investment journey remains on track, no matter what uncertainties may arise. By combining your SIP investments with a term insurance policy that fits your financial needs, you can build wealth and protect your family at the same time, giving you the peace of mind you deserve.
†Policybazaar does not endorse, rate or recommend any particular insurer or insurance product offered by any insurer. This list of plans listed here comprise of insurance products offered by all the insurance partners of Policybazaar. For a complete list of insurers in India refer to the Insurance Regulatory and Development Authority of India website, www.irdai.gov.in
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