Ch. 4: Who Should Buy Term Insurance?

Buying insurance is a crucial decision. But, you need to ask yourself a few questions and evaluate whether and when you need the policy - since you won’t be there to receive the cover amount.

• Whom are you buying this policy for? Do you have any financial dependents who would face financial hassles in your absence?
• How will this money be useful for them?

In this article, we’ll discuss the various aspects you should assess before you decide to buy a term insurance policy.

1.You have financial dependents.
If you have family members who depend on your income for their living to meet their short-term or long-term expenses, they are financially dependent on you. You can take a term insurance policy to ensure they have financial security and won’t have to compromise on their standard of living in case you pass away while the policy is active.

Financial dependents may include your spouse, retired parents, younger siblings, children (present or planned), etc. In case you’ve taken a joint loan with someone in your family who is earning and independent, you should still consider them your financial dependent as they’ll have to bear the full burden of the loan if something happens to you.

2.You have taken loans or have liabilities
If you have taken a large loan, like a business or an education loan, or if you have liabilities that would burden your family in case you pass away, you need a term insurance plan.

For instance, say you take a business loan of INR 1 Crore. Now, if you pass away before repaying the loan, the financial burden would fall on your family members. However, if you have a term insurance policy and if you pass away and within the duration of the policy tenure, the insurance company will pay the claim amount to your family, with the help of which they can repay the entire loan and live a debt-free life.

3.You have unfulfilled financial responsibilities
If you have major unfinished responsibilities, like children’s education or younger sibling’s wedding, etc. then you should consider taking a term insurance policy.

As the elder sibling, you’d want your younger sibling to get an education from a top university, or as a parent, you’d want to ensure your child receives training from a renowned institution to become a cricketer. But there’s no guarantee you’ll be around to fulfil these dreams and responsibilities. If you invest in a term insurance policy, it will provide your loved ones with a fixed amount of money. It can help your sibling to get an education in that top university and your child to get the training in that renowned institute.

4.You don’t have enough wealth
If you are still in the process of building a substantial corpus - meaning, you have not created enough wealth to give a steady stream of passive income, that's sufficient to take care of your family’s financial responsibilities over a lifetime - then, you need to buy a term insurance plan.

• Rohit’s case: Rohit has taken a home loan, both his parents are dependent financially on him currently and he plans to have a child in the future. Hence, he’ll need to buy a term insurance policy.
• Kavya’s case: Kavya is not married, doesn’t have or plans to have any financial dependents in the foreseeable future, and both her parents don’t depend on her financially. So, Kavya doesn’t need a term insurance plan right now.
• Aman’s case: While Aman is married, he doesn’t have any family members who depend on him financially, nor has he taken any loans. So, Aman, too, doesn’t need to buy term insurance.

So, if you have financial dependents, unfulfilled financial responsibilities, loans/ liabilities, and have not built enough wealth for your family’s short and long-term needs, you should purchase a term insurance policy. Otherwise, you can skip it.