Life is unpredictable, and ensuring financial security for your loved ones should be a priority. While you may be building financial stability for all of you to enjoy together, it can be all laid to waste in one stroke of ill fate. To prepare for this, you can rely on life insurance.
Life insurance serves as a financial safety net, offering protection against uncertainties. It provides peace of mind and ensures your family can maintain their standard of living even in your absence.
Life insurance is important for people from various walks of life for the following reasons:
1. Financial Security for Family
The primary purpose of life insurance is to provide financial security to your loved ones in case of an untimely death. When you have a life insurance policy, it guarantees your family will receive a lump sum (death benefit) to cover immediate and long-term financial needs. For example, if a primary breadwinner were to pass away, their policy nominee could use the death benefit to cover any liabilities they may have left behind, along with their regular expenses as well as other financial goals.
2. Building Wealth
Certain types of life insurance, such as endowment or whole life policies, combine protection with savings or investment components. These policies accumulate a cash value over time, allowing policyholders to use them as long-term savings plans.
These options can be useful as part of a comprehensive financial strategy, offering both protection and an opportunity to grow wealth.
3. Tax Benefits
In India, life insurance policies also offer tax-saving benefits, which can be a significant advantage for policyholders. Under Section 80C of the Income Tax Act, premiums paid towards a life insurance policy are eligible for tax deductions, up to a limit of ₹1.5 lakh per year. Additionally, the death benefit received by the family is also tax-free under Section 10(10D). The exemptions may be applicable if you are a taxpayer under the old tax regime, subject to the prevalent tax regulations.
4. Critical Illness Coverage
Several life insurance plans provide riders or add-ons for critical illness coverage. This means that if the policyholder is diagnosed with a critical illness (such as cancer, heart disease, or kidney failure), they receive a lump sum to help cover medical expenses.
Here’s why you should consider life insurance with a critical illness rider.
Rising medical costs: Hospitalisation and treatment for critical illnesses can be expensive.
Comprehensive protection: Combining critical illness coverage with life insurance ensures you are protected on multiple fronts.
5. Debt Protection
Taking on loans is a common measure when buying homes and vehicles, or funding education. In the unfortunate event of the borrower’s death, the burden of repaying the loans can fall on the family. A life insurance policy ensures that the outstanding debt is taken care of, preventing a financial strain on dependents.
6. Legacy Creation
Life insurance isn’t just about protection; it can also be a tool for creating a legacy. The death benefit received from a life insurance policy can be a significant financial resource for your heirs, helping them achieve long-term goals such as buying property, starting a business, or securing education for future generations.
Types of Life Insurance
Whether you are looking for your first life cover policy or an add-on to your current plans, you ought to know about the common types of life insurance plans available in India.
Term Insurance
It provides coverage for a specific period. If the insured dies during this term, their family receives the death benefit. Term insurance is the simplest and most affordable life insurance type, but it has no maturity value if the policyholder survives the term.
Whole Life Insurance
It offers lifelong coverage. Whole life insurance includes both a death benefit and a cash value component that grows over time, providing the potential for savings.
Endowment Plans
Colloquially referred to as savings plans, endowment plans offer life coverage along with a savings component. If the insured survives the policy term, they receive a lump sum (maturity benefit). In case of death, the family receives the death benefit.
Unit Linked Insurance Plans (ULIPs)
These plans combine insurance and investment. The premiums paid into ULIP plans are directed towards providing a life cover as well as market-linked returns, through funds such as equity or debt, offering the potential for wealth growth.
Life insurance is more than just a policy; it’s a commitment to your family's well-being. Whether it is through a comprehensive policy or a straightforward term insurance plan, the peace of mind that comes with knowing your loved ones will be financially protected is invaluable.
