Is Your FD Enough for Your Family?

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Ram brags on being up-to-speed in money management. Despite his hectic office schedule, he has managed to spread his investments across PPF, FDs and other instruments.

He met his friend Kartik, who is a Certified Financial Planner. With a glint in his eyes, he placed his balance sheet in his friend’s hand and said, “Kartik, how many marks will you give me for my financial planning acumen?”

Kartik glanced at the same with interest and said, “Good, mate. You have done well and have most of the ingredients in the right place. I will give it 7 on 10.”

Ram then asked him, “Why 7 on 10 and not 10 on 10?”

Kartik explained, “To begin with, you don’t have a Term Plan.”

Ram protested, “I don’t have a term plan but I have savings in Fixed Deposits.” He pointed out the short term Fixed Deposits in his balance sheet and his savings bank account statement.

Kartik jabbed a finger at his friend’s saving bank account statement. “That’s a mistake,” explained the financial planner with a smirk on his lips. “See? You have 6 months of your expenses in your Saving Account. But if something happens to you will this amount protect your family from financial crises in your absence?”

Ram edged forward and looked stunned.

Kartik then continued, “The sudden and untimely demise of a family member is something that we don’t typically want to think about. But you should think about this deeply if you’re an earning member of your family, more so if you’re the breadwinner. You should think about what will happen to your family in case you’re not around anymore. This is a difficult subject to consider, but an important one.

Your family would be emotionally shattered in such a situation, but they shouldn’t be financially broken as well. There’s one way to ensure that your family’s financial future is taken care of and that is by purchasing a term insurance plan.

A term insurance plan is an agreement between the insurance company and the policyholder. According to the agreement, the policyholder pays a premium amount for the term of the policy and in return gets a cover for a specific amount. This cover is usually much higher than the premium paid. In the case of the demise of the policyholder during the term of the policy, the insurance company pays this cover amount to the nominee.

This is essentially how life insurance works. Term insurance plan isn’t supposed to be considered as an expense but it needs to be considered as an investment that will cover major risks in life. There are some types of life insurance policies that provide investments or periodic income, but they don’t fulfill the purpose of risk cover adequately. The goal of a policyholder should not be to get something out of term life insurance. The goal should be just financial protection in case of an untimely demise. This is why term insurance is the purest form of life insurance. It provides a huge sum assured at lower premium rates.

A term insurance plan should ideally be purchased early in life. The younger you are, the cheaper the premium will be. Young earners in their 20s typically don’t think of life insurance because they don’t have dependants at that time. But later on in life, you will start a family and during that later stage getting an adequate life cover will be more expensive. Hence, it is best to start with a term insurance policy at a young age.

Apart from this, the other benefit of life insurance is that the premium paid can be claimed as a tax-saving deduction. Under Section 80C of the Income Tax Act, up to Rs.1.5 lakh deduction can be claimed to reduce your taxable income at the time of filing income tax returns.

Life insurance can be bought online as well as offline. However, online term insurance plans are cheaper. Make sure you don’t procrastinate and buy life insurance as soon as you can.”

After listening to this, Ram has understood that his Fixed Deposits were not enough for his family’s financial security. He decided to buy a term plan to safeguard his family’s future in his absence.

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