Taking loans has become extremely commonplace these days. Everyone ends up with some loan or the other, and often, people have a combination of various loans that they repay together. From education loans to home loans, from personal loans to business loans, debt has become a part of our modern-day lives. If you too have some loans that you are still repaying, you need to secure your debt with life insurance. If you die before you can repay all your debt, the onus of clearing that will shift on your family members. And if you are the primary breadwinner of the family, your loved ones will struggle a lot to pay off your debt and that too without the support of your income. Save them from such a situation by buying a good life insurance plan to secure your debt.
Debt Protection With Life Insurance
So how exactly does life insurance help secure debt? Well, the answer to that is rather simple. You need to get a life cover that is large enough to cover the value of your debt. For instance, if you still have INR 65 lakhs to repay for your home loan, take a life cover that is more than INR 65 lakhs. If you die thereafter, your family can use the sum assured received and clear the loan easily.
Types of Life Insurance to Choose
As we all know, life insurance is available in different variations. You need to choose a life cover that would help you secure your debt. Some of the best options for you include:
- Term insurance -
Term insurance is an easy and inexpensive form of life insurance. You get a high cover at a very low cost. This is a very effective way in which you can secure your debt. Just take a term plan that is equivalent to your debt amount when you take the loan. This will help you to secure your loan in a very effective manner. You won't have to pay an exorbitant premium either and so it will work very well for you.
Ideally a decreasing term insurance plan would be ideal to cover your debt as the sum assured keeps decreasing over time.
- Endowment insurance -
The next option is to buy an endowment insurance plan. The endowment plan will help you to cover your debt and also build up a corpus and you can keep earning dividends from it. So if anything happens to you, your family can use the death benefit to clear the debt and if you survive the policy period, you can get the returns out of the policy as well
- ULIP -
An ULIP is an excellent life insurance option. It helps you to keep your life insured and thereby secure your loan. It also helps you to earn high dividends with which you can clear your loan faster while you are alive. You get this dual benefit from a ULIP and so it proves to be a good option for you to secure yours with.
All forms of life insurance can help secure debt, but some are more effective than the others, so you need to understand the scope of cover and then choose the plan with care.
Calculating the Value of the Life Cover
While you may want to secure your debt with life insurance, you should also ensure the life cover offers maximum and comprehensive coverage. Even after clearing the debt, your family should have enough money to take care of their financial needs. To ensure you have the best sum assured, keep the following factors in mind:
- Financial milestones -
You need to see what important financial milestones you have left. These include your child’s financial milestones such as collegeadmissions, marriage, etc. You also need to see what other milestones you have such as your mother’s knee replacement surgery and so on. Calculate all the costs together and you will know what your life cover should look like.
- Number of dependents -
If you have a small family and just your spouse and child depend on you financially, a small sum assured may suffice. If however, you have more people depending on you, your life cover should obviously be a lot larger.
- Lifestyle -
And finally, you need to assess the lifestyle that you and your family enjoy. If you have a lavish lifestyle that consists of frequent holidays, expensive cars, etc. you would need a high sum assured to ensure your loved ones can continue with the same lifestyle even after you die. If you have a more modest lifestyle, a smaller life cover may be sufficient.
Once you calculate these expenses, you will know how much your family needs. Add that amount to the debt amount and you will successfully arrive at the correct figure and then you will be able to have the most accurate life insurance coverage.
Life insurance is a wonderful modern-day boon. It offers many advantages, debt protection being one of them. Secure your debt with life insurance. You can have a dedicated plan, such as a decreasing term insurance plan as a debt protection option, and then invest in another life plan to protect your loved ones. Alternatively, you can combine all the needs under one plan and buy a whole wholesome cover to ensure your family never has any monetary issues after your demise.
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