A life insurance policy is an irreplaceable instrument for the policyholder to keep the dependent’s future secure from any financial hardships in the case of the policyholder’s death.
The advantages of life insurance policies are numerous. From creating a cushion for the entire family to financing children’s education in the future, a life insurance policy can save a family from struggling to make ends meet when the sole earning member passes away.
Benefits of having a life insurance
The top benefits of life insurance are as follows.
Peace of mind
One of the major reasons why insurance is important is that it gives the policyholder peace of mind. Life insurance guarantees that the family members are protected from financial problems in case anything happens to the breadwinner. It ensures they can continue to live the life they lived even after the policyholder’s death. Purchasing a life insurance policy is beneficial to all the dependents of the policyholder too.
Affordable
Life insurance does not have to be a burden. If you purchase a life insurance policy early in your life as soon as you start earning, you need to pay much lower premiums. Life insurance is affordable when you take the basic package and if required you can easily add riders and make it comprehensive when your income increases. You can start by purchasing term insurance which is the cheapest life insurance plan.
Guaranteed pay-out
Guaranteed income is one of the many benefits of life insurance policy. Life insurance policies are not a gamble where you do not know if you are going to win or not. They offer assurance and guarantees which means you know in advance what is covered and what you are going to get in case anything happens. Some insurance policies provide monthly income to families of the deceased which can be helpful in case of sudden death.
Better savings
Among the top 10 benefits of insurance is that it enables better savings when you purchase it when you are young and healthy. As you age, life insurance policies get expensive. When you purchase them early on in life you can expect to pay much lower premiums that enable you to secure your future for much lesser. Life insurance policies also provide better savings rather than a savings bank account thereby ensuring a better future.
Wealth generation
One of the many advantages of life insurance is that it generates wealth. This facility is available in some types of life insurance. For example, when you invest in ULIP plans you can get annual returns of a set amount. These are generally safe and more reliable as they are not dependent on the stock market. This allows you to create wealth over the years depending on the duration of the policy. You need to simply pay the premium which is then invested.
Death benefit
Although it is not ideal, in the real world the death of the policyholder can take place any day. When a life insurance policy is chosen by the policyholder, the dependents get the death benefit wherein they receive the sum assured when the policyholder passes away. This money can be used to pay off debt, fund a child’s education, and so on depending on the needs of the dependents. This enables the family members to meet their needs.
Lightens the loan burden
Life insurance policies can come in handy when there is a loan to pay. In case the breadwinner dies before repaying the loan, the dependents can continue to repay as they get death benefit after the policyholder passes away. This ensures they don’t need to stress about losing their home which can be their ancestral property to repay the loan amount. Many people without a life insurance policy have suffered as they had to lose an asset that meant a lot to them to repay loans.
Withdraw money
Life’s unpredictability means you may need urgent money at any time. In certain types of life insurance plans such as ULIPs, you can withdraw money when you need it. ULIPs are a combination of investment and life insurance. However, note that there is a lock-in period involved which means you can only withdraw money after the lock-in period is over. In India, the lock-in period is generally 5 years but it is best to check with the insurance provider to be sure.
Fund children’s education
Children’s education takes a major portion of the parent’s income as they need to go to school first and then college. One of the 5 benefits of life insurance is that it can fund your child’s education even if you are no longer around. There is specific child insurance, which is a type of life insurance, that allows you to be financially ready so you can fund your child’s education with ease including the college expenses.
Secure loans
The purpose and need of insurance is that it can be used to secure loans in some cases. You can take the loan against your policy. The specific amount will depend on the type of policy you have purchased and the terms and conditions of that policy. There are limits to how much loan you can secure with your life insurance policy and certain insurance providers may allow you to secure loans against the policy only in some cases.
Tax savings
Purchasing a life insurance policy also benefits you when you pay taxes. You can get a tax deduction of up to Rs. 1.5 lakh on the premiums paid annually as per Section 80C of the Income Tax Act. Certain life insurance policies such as the maturity insurance plans are tax-free entirely thereby saving you on your taxes. This is specified as per Section 10(10D) of the Income Tax Act. If you want to save on your taxes then invest in life insurance policies!
Safe investment
When you pay your life insurance premiums you can get a good return on investment compared to other options. It is also much safer compared to investing in other instruments as they depend on a host of external factors. The policyholder will get the money back when the term completes or the dependents will receive the sum assured when the policyholder dies unexpectedly. Either way, the money is safely returned.
Better planning
One of the benefits of life insurance is that it enables you to plan better for your future. You can choose a retirement insurance plan where you earn a pension and live life as you wish after you retire. You can choose a children’s insurance plan to fund your children’s education as they go to school and then college. As there are numerous types of life insurance policies available, you can select one that meets your needs and plan for the best future.
Protection in case of medical problems
Life insurance policies also offer coverage when you are diagnosed with a major illness or when you are getting treatment at a hospital. With the cost of medical care rising by the day in India, a life insurance policy can save you from paying out of pocket which can put a serious dent in your life’s savings. It can also save your family from being stressed for financial reasons as you recover and get back to normal.
Business security
Some insurance providers provide business security in life insurance policies whereby the business partner can receive a certain portion. In this, the partner of the policyholder can claim a share if the policyholder dies suddenly. In such cases, the dependent does not get to keep a stake in the business. The terms of this arrangement must be clearly stipulated for the partner to receive the business security.
How to choose the best life insurance policy for yourself
The key to choosing the best life insurance policy is by keeping the following points in mind.
Assess the insurance goals
You want to consider what you want to achieve with the insurance policy so you can experience all the benefits of insurance. For example, you can begin by determining what stage of your life you are in and your needs. As many types of life insurance policies are available it is easy to feel overwhelmed. Determining the goals will ease the selection process.
Calculate required cover
It is ideal to get proper insurance coverage and experts recommend taking a cover that is 10 times your annual income. This safeguards your loved ones from financial problems down the line. When calculating the required cover, you should factor in your current expenses, future expenses, debts, and so on.
Select premium carefully
You should always take a good look at the premium you will be paying so that you can find one that fits your budget and goals. Consider your current income status and future earnings to determine the best premium for you. It is best to compare a range of premiums and the coverage each provides to find the best balance between the two.
Only opt for reliable providers
As the importance of insurance is being realized, many people want to get life insurance in India. Instead of trusting deals that are too good to be true, you should only select reliable insurance providers in the country to avoid problems later. It is also advisable to check the claim settlement ratio (CSR) of the insurance provider on the IRDAI website. The CSR should be more than 95%.
Be honest
You may want to avoid revealing too much about yourself but that will only complicate processing claims later on and can lead to claim rejection. This is why you must be completely honest with your insurance provider so they can suggest the most suitable plan for you. They can also suggest the riders suitable for you depending on your current and future goals
Read the fine print
Before you commit to purchasing a life insurance policy, it is best if you read all the terms and conditions carefully. Certain life insurance policies have a lock-in period and these will be mentioned in the fine print. Sometimes your life insurance provider may forget to brief you on certain aspects so you can get the clarifications you need by reading it.
Choose a comprehensive plan
It is suggested that you opt for a comprehensive plan when you are selecting a life insurance policy. This protects you in a wide range of circumstances and offers broader coverage. You should add the riders that apply to you depending on which stage of life you are in. Some of the best riders to choose from are terminal illness rider, critical illness rider, and accidental death benefit.
Key takeaways
Purchasing a life insurance policy has numerous benefits such as financial security, tax benefits, death benefit, wealth creation, and availing of the loan. All these ensure the dependents’ future is secure as it can fund the policyholder’s children’s education, pay for loans, and enable the family to live a good life even after the policyholder’s death. It is crucial to select the right life insurance policy by determining your needs, being honest with the provider, and reading the fine print.
FAQs
What is the best age for life insurance?
The earlier you buy life insurance the more affordable the premium will be. The best age to purchase a life insurance policy is when you are 18 years old or the moment you start earning a stable income. This ensures you can plan and keep your future security for your loved ones.
What is the main purpose of life insurance?
The main purpose of having life insurance is to provide financial aid for the family members in the case of the policyholder’s untimely demise. This is particularly important when there is a sole breadwinner in the home.
Can I withdraw money from my life insurance?
It depends on the type of life insurance you have purchased and the terms and conditions. Certain policies such as ULIPs give you the right to withdraw money after the lock-in period is over. However, it is important to speak to your insurance provider to be sure about the withdrawal limits and terms.
Who really needs life insurance?
Life insurance applies to everyone who has a dependent. It is best for young adults, single people, new families, people who have opted for home loans, and business owners. People whose employer provides basic life insurance can get insurance riders to expand the coverage.
Is saving better than life insurance?
Purchasing a life insurance policy is better as it provides more benefits than simply saving. If you want the best of both worlds, you can opt for a savings plan which is essentially a life insurance policy that provides financial security like a savings account.
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