When you are young with a family and kids, there is bound to be confusion because you not only want to provide them with the best of everything you can afford, but also there is a need to protect them financially in case you are not there. This makes a life insurance plan one of the smartest long-term safeguards that you can opt for a family. And it particularly holds good for young families. If you are starting a new journey of life with your spouse and kids, a life insurance policy can be an ideal purchase. However, the presence of various types of life insurance can be a bit overwhelming. Which one should you choose?
Why Life Insurance is Non-Negotiable Once You Have Kids?
When you have kids, life insurance becomes a necessity. If you’re not around tomorrow, your family still needs money for daily expenses, loan repayments, your kids’ school fees, and your spouse’s long-term plans. Without a solid policy, your family could struggle to maintain their lifestyle. That’s why you must get enough coverage to entirely replace your income, pay off debts, and secure your children’s future education.
Start with a simple term plan and boost it with riders like accidental death or critical illness for extra protection. Don’t mix insurance and investment at the start; keep your insurance purely for protection and invest separately for growth. Cover your spouse too, even if they don’t earn a salary; losing a stay-at-home parent means extra costs for childcare or home help. Pick the right nominee and update details as life changes. Review your cover every five years or after big events like having another child or taking a new loan. These small checks keep your family protected, no matter what happens.
Types of life insurance plans
There are a lot of different types of life insurance plans, and they cater to different needs. Being aware of the different types will help you choose wisely. Here are the most prominent life insurance plans that you can buy.
- Term Insurance
The present scenario has taught us all how unpredictable life can be. Having life insurance is a must in the present times. The policy provides financial coverage to the family and kids when the insured is not around. This becomes all the more important when the family, the education of the kids and their lifestyle depend on the earnings of one individual.
A term insurance plan is a pure life insurance policy which gives the sum assured as a death benefit to the family of the assured in case of the untimely demise. If the policy is in force and all premiums are paid, the family gets a lump sum amount, which helps them manage expenses. As this is a pure life insurance plan, the premiums are affordable, especially in the early stages of life.
- ULIPs
A ULIP or unit-linked insurance plan is ideal if your goal is to grow your funds while also securing life. When you pay a ULIP premium, a portion of it goes to providing you with a life cover, and the remaining is invested in market-linked instruments. Depending on your willingness to take risks, you can opt for equity funds, debt funds, or balanced funds.
ULIP plans have a lock-in period of 5 years, making them ideal for long-term investments. You can avail of tax benefits with ULIP. For starters, the premiums are tax-deductible under Section 80C. Likewise, the proceeds of the plan are non-taxable under Section 10(10D), provided that your annual premiums do not exceed INR 2.5 lakhs. If it exceeds, you must pay capital gains tax on the same. You can also opt for riders to further enhance the capabilities of the plan.
ULIPs are a great choice for a young family as you can use this for the education of your child or their marriage, or any other life goals. These help you save tax, help you save for your life goals, and ensure financial protection in case of your untimely death.
- Endowment Insurance Plan
- An endowment plan is similar to a ULIP but is a more conservative financial tool that can be a great option for young families. An endowment plan offers a combination of savings and life cover. In the unfortunate event of the death of the insured, the nominees receive the sum assured of the plan, the savings component of the plan, and any bonus that they qualify for.
- Child Insurance Plan
If you have a newborn in the house, it is a parental instinct to provide for financial security for their future. As a result, many parents invest in a child insurance policy. The plans are designed to provide protection and growth for the future of your child. The plan can be a great addition to your portfolio to create a corpus for your child. The corpus can be used for higher education or for meeting their future goals.
Some crucial features of the plan include a waiver of premiums on the death of the parents. Likewise, the nominee or the child stands to receive the death benefit if the parents pass away.
- Money-back policy
Money back is one of the more popular types of life insurance, especially for young adults with children. These plans offer savings and protection together. The only major difference is that you start receiving a part of the sum insured at regular intervals and not at the end of the tenure. The remaining amount is paid at the end of the term of the plan as maturity benefits.
One of the major reasons behind the popularity of the plan is the liquidity it offers by offering a source of regular income, which is a boon for young families. Since you stand to receive funds at regular intervals, you can use them for different expenses, like the education of the child, etc. These offer financial liquidity along with a life cover, which makes them a preferred option.
Conclusion
As discussed, there are types of life insurance plans available. As a young family, you can choose from any of the above life insurance policy plans. Insurance plans such as ULIP, children’s insurance, or money-back plans can be particularly beneficial for young families.