Why is Life Insurance Essential for Your Financial Plan?
A life insurance policy is a must for those who have financial dependents. Even in the absence of dependents, the benefits of life insurance are many. Depending on the plan you choose, you can get the chance to accumulate and generate wealth within the plan itself. A life insurance policy also comes with tax benefits.
1. It acts as a source of income in your absence
A financial plan must account for a situation when you may not be there to look after your loved ones. By adding life insurance to your portfolio, you can ensure that your family has financial support even in your absence.
2. It helps save and generate wealth
The benefits of life insurance go beyond coverage. With the right plan, you can save and generate wealth to help you achieve your life goals.
3. It is ideal for retirement planning
A financial portfolio is incomplete without a solid plan for retirement. By opting for a retirement-oriented life insurance policy, you can financially secure your golden years.
4. It helps you leave a legacy
The various benefits of life insurance ensure that even when you pass away, your financial wisdom continues to support the next generation in your family.
What are the Benefits of Life Insurance?
Following is a list of the many benefits of life insurance:
1. Financial Security for Your Loved Ones
The primary advantage of life insurance is the financial security it provides to your loved ones. It ensures that their future is certain, regardless of any unforeseen events. The payout from a life policy can help take care of their education expenses, pay off outstanding debts, secure their healthcare costs, and more. By doing so, a life policy allows your loved ones to maintain their standard of living and live a dignified life.
2. Maturity Benefits
Some life insurance plans come with maturity benefits as well. If the policyholder survives the entire policy term, they get a lump sum payout. The policyholder can make use of this payout as they wish. One can use the maturity benefit in life insurance to pay the down payment for a house, fund their child’s education, invest in their retirement plans, explore the world, and more.
3. Market-linked Opportunities
Some life insurance policies can act as investment plans. A Unit-Linked Insurance Plan or a ULIP provides the coverage of a life insurance plan as well as the chance to earn market-linked returns. ULIP premiums are used in two ways: to sustain the sum assured and to invest in the fund of your choice (e.g. equity funds, debt funds, hybrid funds). With a ULIP, you not only secure your loved ones’ future but also your dreams.
4. Tax Benefits
One of the many benefits of a life insurance policy is that it helps reduce the tax outgo of the policyholder. Under Section 80C of the Income Tax Act, 1961, the premiums of a life insurance plan are tax-deductible, up to a limit of ₹1.5 lakhs. A death benefit payout is also tax-exempted under Section 10 (10D) of the Act. While the tax benefits of life insurance cannot be ignored, one must note that they come with terms and conditions.
5. Additional Coverage against Accidents and Illnesses
If you want to, you can increase the financial protection offered by the plan with life insurance riders, such as:
Accidental death benefit rider, which provides an additional payout if the insured suffers an accidental demise
Total and permanent disability rider, where the insured receives financial support if they are totally and permanently disabled due to an accident.
- Waiver of premium rider, where the premiums are waived off if the insured suffers an accidental total or permanent disability.
Riders come at the cost of an additional premium as they increase the benefits of life insurance and help you in times of need.
6. Peace of Mind
When you know that your family is financially protected, no matter what happens, you can enjoy relief and peace of mind. You can live your life without any worries about finances, knowing that your loved ones will have financial stability even in your absence.
A life insurance policy ensures that the future financial needs of your family are met, which allows you to live your life to the fullest.
Things to Look for While Buying Life Insurance
To make the most of life insurance benefits, it is important to choose the right plan. And, to choose the right plan, make sure to consider the following factors:
Your Coverage Needs
Start by getting clarity on how much amount your loved ones will need in your absence. Consider daily expenses, utility bills, children’s education fees, pending debts, and more. Take inflation into consideration as well. You can use tools like the Life Insurance Calculator and the Human Life Value Calculator to get help at this stage.
Ideal Policy Type for You
There are various types of life insurance in the market, such as:
Child insurance plans, which aim to provide financial support to fulfil your child’s dreams
Money back plans, where the policyholder receives regular payouts during the policy term
Retirement plans, where the main motive is to provide payouts during one’s retirement
Term plans, which are cost-effective policies providing coverage for a limited period only.
Review your needs and choose a type of life insurance accordingly.
Right Policy Term
Review how long you wish to receive the coverage. The duration will determine the premium and the type of policy you can buy. If you want lifetime coverage, a whole life insurance policy may be a wise idea. But if you seek coverage for a shorter period, term insurance plans may be better.
Premium Payment Term
It is the duration for which you will be paying the premium. Make sure to choose a term where you can pay the premiums without financial strain. A shorter term may mean a higher premium to pay each year, while a longer term may lead to shorter premiums each year.
The Right Insurer
To choose the right insurance company, look at factors like the premium quotes, customer service, the various types and features of life insurance offered by them, available riders, and more. Also, look for the claim settlement ratio which shows the number of claims the insurer paid for, out of the total claims they received. A higher ratio can be considered a good sign.
Policy Terms and Conditions
Before you sign any policy document, it is important to read through the list of terms and conditions. Look for the fees and charges you may incur at specific stages, or the conditions surrounding a particular benefit. If you have any doubts when reading the T&C, reach out to the insurer right away.
Who Requires a Life Insurance Policy?
The benefits of life insurance can be enjoyed by all. However, the following individuals may find life insurance to be particularly beneficial:
Breadwinner of the Family
Those who provide the main source of income for their families need a life insurance plan. The benefits of life insurance go much beyond financial security. In the breadwinner’s absence, the life insurance policy can continue to provide for their loved ones and help them become independent.
Married Couples
A two-wheeler cannot function on a single wheel, no matter how strong it may be. Similarly, a couple’s finances may struggle if one spouse passes away. A life insurance policy can ensure that the wheel of everyday finances keeps turning without any hitches even during difficult times. .
Parents
Raising a child comes with a set of expenses like no other. Their education fees and daily expenses can add up to a hefty cost. To ensure that the child’s future is certain regardless of any unfortunate events, parents must opt for a child investment plan from the right insurance company.
Individuals Needing a Regular Income after Retirement
Your senior years should be a time of leisure and enjoyment, not worries. To ensure that is indeed the case, invest in retirement plans from life insurance companies. Along with a life cover, these plans can also provide payouts at regular intervals. These payouts can help you tick off items from your retirement bucket list!
Individuals with Dependants
Life insurance is important for all individuals who have dependants. It is important not only for married individuals with young children but also for those who live with their parents. Such individuals can buy term insurance for parents to ensure their financial security.
What are the Types of Plans Covered Under Life Insurance?
The term ‘life insurance’ consists of various types of plans, such as:
1.Term Life Insurance
These are pure protection plans offering financial security to your family in case of your untimely demise. A term insurance plan can provide high coverage at an affordable premium.
2.Whole Life Insurance
A whole life insurance policy provides lifetime coverage, for as long as 99 or 100 years of age. It ensures your family receives a payout no matter when you pass away. Some whole life plans also come with a maturity benefit component.
3. Endowment Policy
An endowment policy combines the benefits of insurance coverage with a savings component. If the policyholder survives the term, they receive a lump sum maturity benefit.
4. Money Back Policy
Instead of a lump sum at maturity, a money back policy provides periodic payouts at regular intervals. If you want to enjoy liquidity during the policy term, a money back policy can be ideal.
5. Unit Linked Insurance Plans (ULIPs)
They offer the dual benefit of life coverage and investment. A portion of the premium is distributed towards life insurance while the rest is invested in equity, debt, or hybrid funds as per your choice. A ULIP is an ideal addition to your portfolio if you are looking for a long-term investment plan offering market-linked returns.
6. Goal-specific Life Insurance Plans (ULIPs)
These include child insurance plans or retirement plans, where the goal is to secure a particular stage of life.
The benefits of life insurance are numerous. It provides financial security for your loved ones, allows you to save and generate wealth, secures your retirement, gives tax benefits, and more. To make the most of these life insurance benefits, you must understand the various plans available in the market and check several factors before finalising the right plan. By selecting a policy suiting your financial needs and objectives, you can ensure a secure future for yourself and your loved ones.
FAQs on Benefits of Life Insurance
Understanding Life Insurance
1. How long does life insurance last?
You can choose how long you want life insurance coverage. A term plan is for a specific period only while a whole life plan can last for a lifetime.
2. What happens if I do not pay the life insurance premium on time?
If you do not pay the premiums on time, the policy may lapse, and you may lose the benefits of life insurance. Hence, remember to pay the premiums on time.
Understanding Life Insurance Benefits
3. What is the benefit of life insurance?
The main benefit of life insurance is the financial protection it affords to your loved ones.
4. What is an advantage and a disadvantage of life insurance?
The advantage of life insurance is the security and peace of mind it offers, while a high premium may seem like a disadvantage to some. Opting for a cost-effective term plan can help in this regard.
5 .Are there any life insurance benefits for a woman?
Women can enjoy several life insurance benefits. It can help them become financially stronger, as they no longer have to worry about their loved ones’ future. They can also earn market-linked returns by opting for ULIPs. In addition, women may have to pay lower premiums as compared to men.
6 . What are the life insurance benefits for senior citizens?
A life insurance policy can play an integral role in the financial life of senior citizens. It gives them peace of mind that their loved ones are financially protected. In addition, it can also offer regular payouts, which allows them to live out their retirement dreams.
Understanding Life Insurance Riders
7. Can I buy riders without a base policy?
No, you need a base policy to buy riders. By opting for riders, you can increase the coverage offered by your base policy.
8. How many riders can I add to my life insurance policy?
There is no limit to the number of riders you can add to the plan as long as they are available with the insurer.
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