What is life insurance?
A life insurance is a formal contract between a policyholder and an insurer under which the insurer is obliged to pay a mutually decided amount to a person/people of the policyholder’s choice in the event of his/her death. The insurer is bound to honour the contract on the condition that the policyholder pays all the premiums without fail. There are various types of life insurance plans in India. Though a life insurer is supposed to pay the nominee/legal heir in case of death of the life insured during the policy tenure, some life insurance plans also have survival benefits. Life insurance plans come in different shapes and sizes and provide a host of benefits.
Benefits of life insurance
• Flexible investment option: Life insurance investments help you achieve a wide spectrum of life goals. You can choose to protect your family in your absence with a simple term insurance plan. On the other end of the spectrum, a unit-linked insurance plan can help you save for your child’s education or your retirement. ULIP plans offer market-linked returns along with insurance cover.
• Inculcates habit of saving: A life insurance investment is a long-term commitment. Life insurance plans generally have premium payment terms spanning several years which inculcates financial discipline in the policyholder. Policies with investment components force you to save regularly to achieve life goals.
• Health cover: Some health issues can have an impact equal to losing a loved one. Serious illnesses such as cancer or heart diseases take a heavy emotional toll and can erode family savings instantly. Some life insurance plans have a health insurance component in-built in the policy. The insurance company pays a lump-sum amount in case the insured gets diagnosed by such illnesses.
Life insurance investments can be customised as per your requirements. It can be utilised to mitigate health emergencies as well as to manage debt. The benefits of life insurance are apparent, additionally, here are five reasons to buy life insurance at the earliest.
Five reasons to invest in life insurance
1. Cheaper when young: It may sound strange, but life insurance policies are cheaper when you are young. The cost of a policy is dependent primarily on the health and well-being of the insured. People tend to be healthier when they are young which reduces the risk of diseases and death. Add life insurance to your investment plan in your twenties to avoid paying substantially higher for a similar cover later in life.
2. Peace of mind: No one wants to leave his/her family in a financially vulnerable situation, but many people fail to take timely action. Family members, especially children are dependent on the earning member of the family. In the absence of a regular income, the most severe impact will be felt by the children. A life insurance investment ensures that your family will not have to pass through tough times in your absence. Life insurance pay-out can be used as a regular income or to take care of major expenses. With a life insurance policy, you can live as well as lead life with absolute peace of mind.
3. The earlier, the better: Insurance companies need to abide by certain underwriting guidelines before they issue a policy. If you approach an insurer with a pre-existing health condition, it may either refuse you or will be charged a higher premium. It is always better to get life insurance when you can easily get one – as with the old adage: “the earlier, the better”.
4. Helps in meeting life goals: Everyone has a different life goal and life insurance can help accomplish various life goals. Life insurance can help you build a corpus for a stress-free retirement. It can help ensure you have a regular income post retirement. Life insurance can also help you save for your child’s education. However, investing early will lead to an early achievement of life goals.
5. Tax Savings: Life insurance is one of the preferred tax saving options in India. The premiums paid are eligible for tax deductions of up to Rs 1.5 lakh in a year under Section 80C of the Income Tax Act, 1961. The maturity and death proceeds are exempt from income tax under Section 10 (10D) of Income Tax Act, 1961 The above mentioned exemptions and deductions are subject to changes in tax laws, as amended from time to time.
Type of life insurance in India
Life insurance caters to a host of customer requirements, from a simple death coverage to saving for retirement. Different types of life insurance have been designed to serve a wide customer base.
• Term plan: It is the most basic form of life insurance. Term Insurance Plans helps you secure your families and their life goals in your absence.
• Endowment plan: An endowment policy is similar to term plan with a major difference. If the policyholder survives till the maturity date, he/she receives a lump-sum amount as maturity benefit.
• Unit-linked insurance plan: ULIP plan provides dual benefits i.e. of insurance and investment. ULIPs can be used to achieve long-term financial and life goals.
• Whole life policy: While most life insurance policies provide cover for a limited period, whole life policies provide coverage for the entire life.
• Annuity plans: These plans are designed specifically for retirement. The accumulated corpus of the policy is distributed as regular income or is given as lump-sum annuity after retirement.
How to buy life insurance as per your needs?
The primary use of a life insurance policy is to provide protection and secure financial future of your family. Have a clear financial reason before opting for a life insurance policy. If you just want protection, opt for a term insurance plan. If your aim is to have life insurance coverage, but also want to save for the future, a ULIP can be preferred. Endowment plans also pay a maturity benefit, just like a ULIP, but there is a crucial difference. If you have a slightly higher risk appetite, choose a ULIP plan as it may deliver higher returns. If you are a conservative investor, opt for an endowment policy. If you didn’t plan for your retirement, but want a regular income, an annuity plan will be the right choice.
Conclusion
Life is unpredictable, it is always desirable to have financial protection from unforeseen circumstances. Life insurance investments guarantee financial protection for your family in your absence. Include life insurance in your investment plans and enjoy a fulfilling and content life.
