Benefits Of Life Insurance Policies
Financial protection is just one of the many benefits of life insurance. Here, we list a few lesser known benefits of life insurance like life risk cover, death benefits and tax savings.
By Aarthi Arun • 11 min read
Life is unpredictable. At times, some events in our lives turn our world upside down. Accidents and sickness, for example, can happen to anyone, at any time. But, there is a way to escape these dire situations unscathed or with minimal damage: a life insurance policy. It is your security blanket to keep your family safe when life throws those unexpected curveballs at you.
In India, it is estimated that 75 per cent of the population do not have life insurance. With the availability of basic policies at less than Rs 1,000 per month, the situation is unacceptable. Life insurance, (which includes Term insurance and Endowment Policy) is a simple contract between you (the life assured) and your insurance agency, where you agree to pay a monthly or yearly premium to them. At the end of the term or upon your death, the insurer will pay the sum insured to the beneficiaries (your family members). Apart from the obvious benefits like life cover and accident protection, life insurance also comes with other perks like tax and pension benefits, investment options, and many more. Continue reading to know all the benefits of life insurance plans like whole life insurance, group term life insurance, term life insurance and life insurance for child.
So, when you buy an insurance policy, here's what happens.
Your family's future is safe
If there is one thing we all want, it is the assurance that our family will be looked after when we are gone. While we can't ease their pain and emotional loss, we can at the least take away the financial burden for them. When you have a life insurance plan, it gives your loved ones financial protection. Your family members (beneficiaries) can get the death benefits – usually, the sum assured plus any bonus – as a lump sum or in monthly installments. So, in case you are the primary earning member of your family, your loved ones don't have to worry about the EMIs, loans, bills, school or college fees, in the event of your untimely death. Specifically speaking, policies such as Term Life Insurance, where the premium is low ensure that your family gets huge returns in case of your sudden demise within the policy period. Also, you can get insurance coverage for untoward accidents or critical illness with insurance like personal accident insurance.
"There are different ways of calculating how much life insurance you need. For, example,the Income Replacement method or Human Life Value method are the top two methods that are adopted. Some of the key factors you should consider for your life insurance requirements are:
a. Your financial commitments
b. Financial goals for your family members
c. Your income levels
d. Your habits — Insurers charge additional premium for smokers, those who consume alcohol, and those who are in professions with inherent risks (example: stunt masters)."
— AV Senthil, Finance Expert
You are saving for long-term
When you go for a life insurance policy, you will pay a small monthly premium for a fixed period like 20 or 30 years. The premium of your life insurance policy is often a small amount that won't take a chunk out of your monthly budget. Because the amount is not very high, you tend to stick to your monthly commitment. So, this model is a realistic option rather than saving a huge amount of money every month. As there are penalties to withdraw from the plan, you're likely to continue the commitment till the end of your term. Also, policies like Unit Linked Insurance Plans (ULIPs) come with a lock-in period, where you are forced to keep your commitment without withdrawing the funds.
You can opt for higher returns without the high-risk
Let's face it. No one wants to get into the hassle of stock markets. They are unpredictable, and it requires a considerable amount of time and effort to get any benefit out of them. ULIPs will help you invest in the stock market without all those additional efforts. They are popular for their high returns, and let you invest in funds with varying degrees of risks. There are also latest offerings like survival benefit or maturity benefit. If all goes well till the end of your term, you can enjoy the returns on your investments and extra bonus along with the sum insured. One particular policy called the Money back policy takes this one step ahead by paying the survival benefits every five years instead of the usual end of the term.
"The three major types of insurance are Term Insurance, Endowment Policies and Whole Life Policies. Most of us complete our financial commitments by the time we are 55 or 58. So, we don’t need policies for 99 years. For HNIs (High Networth Individuals) and Ultra HNIs, it is recommended they take Whole Life policies, as they can be used for estate distribution." — A V Senthil, Finance Expert
Your children can reach their potential
We wish to give our absolute best to our children. But with the skyrocketing school and college fees, this may seem like an impossible feat. But, when you have life insurance, you have the comfort of having your – and your child's – dreams within reach. You can also buy specific child insurance plans that can particularly cater for your children's education. Some policies may also allow availing a loan against your policy at a low-interest rate. Your child may aspire to go to that expensive foreign university, or start a business, or have a destination wedding. Long-term savings like life insurance can make those dreams come true.
You build a reliable pension fund
Who wouldn't love to have a peaceful retired life? Would you take up a part-time consulting job after retirement or enjoy your golden years without a care in the world? What about your other retirement goals like going on a European vacation or buying that seaside villa? With a life insurance pension plan, you can receive monthly payments after you retire. This will let you enjoy a lifestyle similar to the one you had prior to your retirement. So, get your finances right by choosing a suitable policy now, and ensure that you enjoy your retired life.
You get life insurance tax benefits
We all know the drill. Come March, all of us are running from pillar to post to make investments and get every bit of tax refund from the Income Tax department. If you have a life insurance policy, you get tax benefit till the end of the term, year after year. Under Section 80C of the Income Tax Act, you can avail tax benefits for your life insurance premium up to Rs 1.5 lakhs per year.
"Sometimes, the tax benefits are 100 per cent and sometimes the tax benefit is capped at Rs 1,50,000 per annum. For example, you have a business entity (say LLP or Private Limited Company) and take a life insurance on the top five employees with a premium of Rs 20 lakhs under Keyman insurance. In this case, the business entity can write off Rs 20 lakhs as business expense and it is 100 per cent tax deductible."
— A V Senthil, Finance Expert
You will sleep better
In our fast-paced life, stress is inevitable. The majority of our stress comes from our finances. With inflation, mounting school fees, healthcare costs and loans, we can't underline the importance of life insurance enough. If you plan your finances and manage to save some money in insurance, you can have the confidence to tackle any financial emergencies or contingencies. This will give you immense peace of mind. There are many advantages of life insurance, but nothing can beat this. Soon, you'll be sleeping better. As a result, your health will drastically improve.
"Buying your own policy depends on how much life insurance cover is provided by your employer, what is covered / not covered under that policy, and your job stability. I always consider life insurance an investment and buy my own policy, usually a floater policy with a higher deductible.
There are certified financial planners and experts, who can provide a holistic view on life insurance, home insurance, or health insurance, for as low as a few hundred to a few thousand rupees. It is better to take a few opinions before paying the premium. Never forget to go through the policy document during the free cancellation period."
— A V Senthil, Finance Expert
Plan soon and invest in your future, to make sure you aren’t left with regrets later. Talk to your insurance agent and get a life insurance policy.
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