myths about investing in ulip plans

“Financial Security Against Life’s Uncertainties. Peace of Mind. Funding Financial Goals.”

While purchasing a term insurance policy, we often talk about its value in terms of the above intangibles that come along with it. But apparently, the monetary value of a term policy remains the focal point.

However, most of us have never had the chance to have lakhs of rupees or even a crore, all at once. This is usually the case when we lose a loved one who has thought enough of us to buy a term policy and secure our financial future.

But the question is-

“What do you do with all the payout money?”

“How do you ensure you don’t put it in the wrong places or don’t misuse it?”

The answer lies in knowing how the term insurance payout can be used wisely by a beneficiary. In the subsequent sections, we shall discuss how a term insurance policy payout can be used. But before diving into that directly, the beneficiary, especially the spouse, needs to ponder on the following:

Give Yourself Time to Make Financial Decisions

It can be an overwhelming feeling to manage the new lump sum amount while dealing with the emotional void of losing the loved one. Therefore, it is recommended that the beneficiary, whether it’s the spouse, parent or a child, shouldn’t feel rushed to use the money. Before making a huge financial decision like paying off a home loan, it would be helpful to take initial few months to live as close to normal and go about your routine, manage the household and pay bills.

Note that it’s not necessary to make important financial decisions by yourself. Talking to a financial planner can guide you to tackle big decisions.

Allocate the Payout for Important Life Decisions

Finally, when you do feel ready to make a financial move with the payout, it’s smart to take a big-picture view of everything. Be it the debts you have or financial responsibilities in the future, like higher education for your children, consider them all.

Here are some of the chief financial buckets to consider when you consider allocating the payout of the term policy:

  • High-Interest Debt

    Before you consider looking at lower interest debt or future obligations, it’s smart to first handle the high-interest debts you have. From home EMI payments to credit cards debt, pay off the balances with a high-interest rate quickly.

    Additionally, it is helpful to consider how these balances were accrued in the first place and consider ways to budget your spending in the future.

  • Children’s Higher Education Expenses

    One of the driving motivations for individuals to purchase a term policy is to make sure that the cost of their child’s higher education is covered even in their absence. Therefore, if the term insurance payout is large enough, the spouse can consider putting some money into a child education plan depending on the ages of the children. Child education plans offer the potential to grow the money over time and can be utilized for children’s higher education at a later date.

    This becomes particularly important considering the rising cost of higher education in India. For instance, a four-year engineering course which costs around Rs. 8 lakhs today is likely to cost around Rs. 30 lakhs by 2030, considering the average running inflation rate of 10 percent.

    Therefore, if you know that your loved one wanted to provide the best education to your child, then funding the education expenses can be his/her legacy that you can honour.

  • Invest in Growing Your Money

    Apart from the two options mentioned above, you can also invest a part of the payout in order to grow its value. For that purpose, you can put some money into investments that you already have or invest in a new financial product altogether.

    However, before investing, make sure that you have enough knowledge about the product. Also have an idea of how it will cater to your future needs and goals.

  • Leaving a Legacy

    You will get numerous advice on how to use the insurance money. But, at the end of the day, you have to craft your life after the demise of your dear one. Along these lines, you can use the money to make the lasting legacy of your loved one. This can be done by either funding a scholarship or donating a part of the payout.

    Alternatively, you can memorialize your dear one through a family reunion, or a vacation too. Remember that s/he trusted you with the money. You were named as a nominee for a reason. Your loved one knew that you would be able to use it in a way that could help maintain a quality of life for other members even in the time of grief. Therefore, use the money wisely.

Finally:

It’s true that a term policy payout can’t bring back your loved one. However, it can help you live out the wishes, goals and dreams, you both crafted together. Most importantly, it can be the way to truly honour the life that your dear one lived.