How to protect your loved ones from debt burden in your absence?

Protecting loved ones


You are at the peak of your career. You have a handsome salary, a happy family, and now you can easily afford to take a loan and buy the house of your dreams.

You’ve calculated the EMI amount and budgeted all household expenses, you are positive that you can pay off the huge debt.


However, life is uncertain. And unfortunately, you meet with an accident. In these troubling times, when your family is mourning your loss, struggling to meet their expenses and replace the lost income, they are further burdened by the home loan you took. Since there is no income, the family is facing extremely tough times.

Now, ask yourself, if this is how you want your loved ones to live in your absence? Do you wish them to be burdened with repaying debt after you are gone? The obvious answer is no!


But how can you ensure that they are financially secure and not paralysed by the crushing debt payments in your absence? You could buy assets and make sound investments. And of the most beneficial investments, you can make for your loved one's future is a life insurance policy.


How can life insurance keep your loved ones from the debt burden in your absence?

During your life, you might take several loans, such as a home loan, car loan, etc., to make high-value investments for your future. Moreover, if you have children, you might take a debt to pay for their education expenses or later fund their marriage. You could further have impending credit card bills, and other financial liabilities to pay off.


For example, if you take home a loan of Rs. 25 lakhs for 20 years at 9% interest per annum. You would likely pay Rs. 22,525 each month for those 20 years. You would be liable to pay these fixed instalments every month until the entire loan is paid.

And while it is understandable that no one takes a loan to default. However, many times during a long-term loan, like a home loan, several instances can cause issues in repayments. These can be:

  • Unexpected alternate expenses
  • Loss of income
  • Sudden death

And even though, each of these circumstances is unfortunate, you cannot simply ignore the fact there is a high chance of them occurring. Now, imagine, who would pay off the debts you secured from financial institutions and other sources?


In such cases, your family becomes the primary sufferer. Especially when the default on the loan is due to your death. However, you can ring-fence your family from this liability in your absence with a life insurance policy.


Life insurance plans are one of the most comprehensive forms of financial protection for your loved ones. A good life cover can help your family meet their monetary needs right from household expenses to loan EMIs in your absence. Life insurance plans like the Aviva Life Shield Premium could help in case of the death of the primary breadwinner and provide funds for the repayment of the due loans. Additionally, you can opt for add-on benefits such as an additional payout to your family in case of a fatal accident and a waiver of premium so that your life cover continues without having to pay future due premiums in case of a permanent total disability due to an accident, during the policy term. 


How much life insurance cover do you need?

The main purpose of a life insurance plan is to provide a much-needed financial cushion for your family. However, you must be cautious when deciding the sum assured for your life insurance policy. Your life insurance plan should be enough to comfort your family financially in your absence.

Here are a few parameters that can help you decide the life insurance cover amount:

  1. Current financial status: Your current financial status, inclusive of your income and expenses, is the prime component in determining the amount of your life cover. The aim is to take a life plan that is affordable and yet meets your requirements. For this, you must understand your current income, expenses, and how much your loved ones would need to maintain their existing standard of life? Ideally, your life insurance policy should replace your income, fulfil family expenses, and also sustain their lifestyle. Moreover, the sum should consider the impact of inflation in the long-run. As a rule of thumb, your insurance cover should be up to ten times your annual income. But it is advisable to consider a life cover, which is 20 times your annual income, given the rising cost of living in India. So, if your income is Rs. 5 lakhs today, you should buy a life insurance plan not less than Rs. 1 crore. 
  2. Present and future liabilities: Your current and expected financial liabilities also influence your life insurance coverage. Know your existing outstanding debts, mortgages, credit card dues, etc., and then include any expected expenses like the marriage of a child, etc. Post this, evaluate how much of your assets can help to pay off these liabilities. The balance (assets and liabilities) is the sum assured that you should get for your loved ones. Specifically, if you have a huge debt burden such as a home loan, you must make sure that your life insurance can sufficiently pay it off, and not leave your loved ones struggling in your absence. This is critically important if you are the sole breadwinner of the family.  
  3. Age at the time of purchase: Your age at the time of buying a life insurance policy impacts your coverage size. The older you are, the higher your premium may be. So, it is advisable to buy term life insurance when you’re young and enjoy a lower premium. 
  4. Tenure of your policy: The term of your life insurance also influences the life insurance coverage sum. You should ideally go for maximum life coverage possible. Typically, because you have your whole life ahead of you and several impending financial liabilities, which you do not want your family to be burdened with in your absence.


How can you make life insurance more affordable?

You can make life insurance policies fit your budget by opting for plans like the Aviva Life Shield Premium. One of the major benefits of this plan is flexibility. In terms of the premium payment term, the Aviva Life Shield Premium plan, allows you to pay a regular, limited or single premium – according to what suits you. That said, in terms of claim payout, you can choose how you wish to support your family after you are gone. The policy can substitute their monthly income, provide them with a lump sum or give them a benefit of both – income and lump sum (50:50).


The major advantage of the Aviva Life Shield Premium plan is the option to choose an increasing, decreasing or flat sum assured. So, if you have a heavy loan, you can opt for a decreasing sum assured. This will work in your favour because when you are alive, you would be paying off the loan liability over the years. This will ultimately reduce your loan amount, and if you opt for a decreasing life insurance plan, your life cover will decrease simultaneously. When it comes to your family, you want to protect them physically, but you must not forget to shield them financially. With comprehensive and customised plans, like the Aviva Life Shield Premium, you can opt for a life cover, which matches your family's financial need.


Play smart and get your life insured early because uncertainty can knock anytime, and only timely action can protect your loved ones.



AN Nov 51/20
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