Can Your Term Plan Replace Your Income for Your Family?

2024-08-02

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Whether you are running a business or earning a salary, running a household is a monthly responsibility you can’t escape. Every month you have a budget you need to look after to keep the kitchen functional and your lifestyle going. Even if you try to create any other budget you will have bills you need to take care of every month.

So, does it sound familiar that regardless of the occupation, monthly income seems to be the sweet spot for every family? If yes, then can your term plan replace your income for the family if anything happens to you?

What is Your Income to Your Family?

Your actual income to the family is more often not your entire monthly salary. In fact, under ideal circumstances, it should not be. Here’s how:

Suppose you are earning Rs. 1 lakh a month. Out of this income, 15% should ideally be your personal expense, 30% your savings and only some 55% must go for the family. Count in the EMI for a home loan, if you own a house, 20-25% more would go towards EMI and your contribution to the family comes down to about 25% of your monthly income of Rs. 1 lakh.

Why Replace Your Income to Family?

While you are there for the family, you are providing a monthly budget, and looking after savings for long-term goals. In your absence, if a term plan is available, the family will have adequate money to look after their expenses. However, it is easier said than done.

Thus, replacing income is important for two reasons:

Family’s lifestyle and household budgets are decided by the monthly budget
With a lump-sum, the family must invest it and generate a monthly income from it

Running household expenses for a few years out of a large pool of funds is not as simple as it looks. While few expenses may seem urgent at times, lack of a fixed budget can easily expedite them. The result of expediting expenses on the finite pool of money is long-lasting. The family may end up suffering a shortage of funds in the later stages of life.

Also, even in the absence of large household expenses, general inflation will force the family to spend more for the same lifestyle. Thus, the decision of using the large pool of money judiciously is a tricky one.

You can, however, relieve the family from this burden to some extent, if you can set-up the regular income for the family, in the place of a large lump sum amount.

How can a Term Plan help?

Term insurance plans like the iSelect Smart360 Term Plan from Canara HSBC Life Insurance gives you the option to choose the mode of benefit pay-out to your nominees. You can choose any of the following three modes of benefit payment:

Lump-sum payout
Regular income payout
Lump-sum with regular income payout

Throughout your lifetime your general income is expected to rise. Thus, an additional growing income option would be the closest alternative to your income to your family. With iSelect Smart360 Term Plan, you can easily estimate your sum assured need for the kind of income you want to secure for your family.

For example, if you want to give your family a monthly income of Rs. 50,000 which will grow at 5% p.a. you will need to allocate about Rs. 60 lakhs towards regular income pay-out.

What about saving for goals?

Like the income for your family’s household expenses, their long-term goals also need consistent and regular investments. Investments which you would make possible you’re your income while present with the family.

However, in the event of your early demise, these investments also suffer. Though, it does not mean your family’s goals have to. You need to include the cost of these goals in the lump sum part of your term insurance benefit.

So, for example, you have a goal of a child’s higher education and marriage, which has a total cost of Rs. 50 lakhs in present terms. You can add this cost to the term plan’s lump sum benefit amount.

In the event of a claim, the family can simply use the lump sum money to allocate to whichever goal needs funding. All they will need to do is invest and wait to achieve the goal.

Don’t Forget to Protect Your Spouse

In the haste of protecting your spouse and children financially from future uncertainty, let’s not forget that your spouse also has a valuable contribution to the family. If anything is to happen to her, you are likely to suffer financial and emotional loss.

Not to mention, disability, critical illness of the spouse can have a significant if not the same impact on the family’s financial wellbeing. Thus, you should consider including your homemaker spouse into your term plan as well.

iSelect Smart360 Term Plan from Canara HSBC Life covers natural death and terminal illnesses under the same umbrella. Thus, you do not need an added critical illness cover; however, you can add the cover for disability. Thus, your protection plan for your family would be complete.