- Life is full of surprises, good and bad, that you’re not always financially prepared to handle
- Most of us find ourselves strapped for cash and need to take out a loan to make ends meet
- Term Insurance helps provide coverage against existing & new loans and ensures that your liabilities are not passed on to your loved ones
Different Types of Loans Which People Take
At several points in our lives, there arises a need to borrow money. You might have taken up a loan to purchase a house, a car or any other major asset which helps you lead a comfortable life with your family. When looking to acquire a loan, there are several options. Each type of loan is very different, ranging from an educational loan and a personal loan to a home loan and business loan. Any loan you take can be categorized as either, secured or unsecured.
1. Secured Loans
A secured loan is a debt that is attached to something you own or collateral of some sort. Simply put, if you don’t keep up with the payments, the likelihood is that your asset might be seized in order to recover the debt.
2. Unsecured Loans
Unsecured loans, on the other hand, are not secured against anything and have a fixed term and a fixed interest rate. They include stuff like credit card purchases, education loans, or loans of a personal nature.
The borrowing limits for secured loans tend to be significantly higher than those for unsecured loans owing to the presence of collateral.
Why Do You Need Income Protection?
Loans, especially secured loans, in particular, are generally big ticket items where the EMI payment continues for a long duration. In some cases, these loans extend even post-retirement. As long as you are having a continuous, regular stream of income, you will be able to afford the EMIs. However, what if an unfortunate incident happens to you and the outstanding loan is passed on to your loved ones?
While none of us like to envision such a grim reality, the truth of the matter is that unforeseen incidents can happen at any time. If you’re not there with your family, how would your loved ones continue to be able to afford and maintain their current standard of living?
Why Term Insurance?
No matter what your age or the financial situation you find yourself in, term life insurance makes sense for families with outstanding loans. Term insurance helps cover your life against unforeseen eventualities for a given period of time, with affordable premiums.
Simply put, term insurance doubles up the financial safety net as it makes sure there’s money available to cover for everything from utility bills to home mortgage and any other outstanding loans you might leave behind. Term insurance makes sure that your loved ones aren’t left with a financial burden to deal with on their own. You can even customize the term length and coverage amount as per your requirements.
Protection Against Long-Term Liabilities
A term insurance can be especially important if you have an outstanding home loan. While a home loan goes a long way in helping us get a step closer towards acquiring our dream home, it can also prove to be a huge liability on the family. Take, for example, the case of
Mr. Tilak, who is a manager at a top MNC and the sole earning member of his family. He has just availed a housing loan for Rs. 80 lakhs which he intends on repaying in monthly installments, amounting to Rs 70,000 over a period of 20 years. He has a wife and two young dependent kids to support. In this scenario, if something were to happen to Mr.Tilak, the entire responsibility of repaying this home loan would fall squarely on his family which, in turn, would put them under tremendous economic strain.
Instead of stressing out, taking timely steps to secure your family’s future right from the beginning will go a long way. The proceeds from a life insurance plan can be used to repay any debts you must have run up, while also helping replace the future loss of income.
Additionally, you can even add a critical illness rider to your term insurance policy that will financially support you in case you get diagnosed with a serious illness. This will safeguard your income getting spent on such unforeseen medical expenses.
