Why is term insurance necessary for sole breadwinner of family?

Insurance plans have been designed to provide financial protection to the family and dependents of policy holder in case of an unfortunate event like the death of the investor. As many Indian families are dependent on only one individual’s earnings to meet monthly expenses it could be a severe tragedy in case of untimely death of the sole breadwinner. In such cases, the insurance plans come to help by providing financial assistance.

For these single breadwinners, term insurance emerges not merely a financial planning tool but a necessary instrument to safeguard the interests of their dependents.

How term insurance plans help sole earning members of a family?

In India, a family relying only on the income of one individual has its unique challenges. Beyond the immediate expenses of daily living and unforeseen medical costs, there are long-term objectives like ensuring quality education for children, care for elderly parents and marriage of children, among others. Without the cushion of an alternate income or savings, these aspirations might hang in delicate balance. So when the main breadwinner of the family is no longer there, what happens to these financial goals and plans? While savings and investments can tide over the need in the short term, lack of any income in the long term could be a severe blow for a family.

Much like a protective shield, term insurance plans provide a safety net to meet any financial uncertainties in future. Under the term insurance plans, the insurers charge a premium at periodic intervals and offer a sum assured to the policy holder. The term insurance plan provides financial protection against untimely demise of the policy holder during the policy term. The insurance coverage ensures that families can navigate the turbulent times without financial worries in case of the unfortunate death of the sole breadwinner of the family.

Term Insurance plan benefits

Contrary to traditional endowment plans or whole life insurance plans prevalent in India, term insurance usually comes at a more affordable price since it purely offers insurance coverage without any savings component. This difference allows policyholders to channel their funds elsewhere, perhaps into diverse financial instruments like mutual funds or real estate.

Modern insurance offerings have adapted to the nuanced needs of the Indian market. Today, term insurance plans come with a plethora of riders - from critical illness covers to accident benefits. This means the only earning member of a family can tailor the policy to address specific concerns and familial needs.

What should be the size of your term insurance plan?

While there's no one-size-fits-all answer, there are a few key considerations to help you make an informed decision. A common benchmark used is 10 to 15 times your annual income. For instance, if the sole breadwinner earns Rs 10 lakhs annually, a cover ranging from Rs 1 crore to Rs 1.5 crore should be a minimum benchmark. This ensures that, in their absence, the family can maintain their current lifestyle for at least a decade or more.

You should also factor in any large debts like home loans, car loans, or personal loans. The sum assured should be substantial enough to cover these liabilities so the family isn't burdened by debt repayments.

Finally, keep in mind your family's future financial needs, from children's higher education, weddings, to taking care of elderly family members. A quick estimation of these costs, adjusted for inflation, will give you a clearer picture of the additional coverage required.