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How can Life Insurance be an Effective Investment Tool?

Janhavi Shinde Janhavi Shinde 23 January 2019

Investing in a life insurance plan can be a smart move. Definitely not because it just helps you save income tax, but many other aspects. Read on to know more about this effective tool here.

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We all know that life insurance is primarily meant to provide security and assurance against life’s uncertainties. And, many financial experts also advice to buy term insurance and invest the rest. But, have you ever wondered if you can use insurance plans as an investment? Well, you are at the right place to seek an answer.

You invest in life insurance with a view to provide your family a financial security. But, life insurance policy is not just an essential protection plan but also can be an effective investment tool to achieve some of your long-term goals. There are life insurance plans that can help you build good amount of corpus for retirement and create wealth to meet various other life-stage needs. From some traditional insurance plans to some newly structured market linked insurance plans, there are plans for every customer of varying risk profile. You have diverse options available to invest in starting right from child plan to retirement plans. Not to forget, senior citizen life insurance policies make it an effective investment tool.

You must have seen child plans often being marketed as a way to save for your kid’s future. This would have put you in a struggle with a thought whether it makes sense to buy life insurance for kids or not!

So, do you need life insurance for your kids?

Answer is yes! Investing in child insurance plan is the good way to start securing your child’s future. Parenthood comes with bundle of joy as well as with huge responsibilities. With the rising rate of inflation, education and any other necessary cost of expenditures are increasing rapidly. Hence, it has become important to build wealth and plan investments separately for your kids. In this case, life insurance for kids can offer dual benefit of life protection and wealth creation.

A child insurance plan will not just financially support your child in your absence but also can provide income protection to your child as an investment tool. Investing in the name of child helps you in creating wealth as most of the child plans provide capital appreciation over the long-run. The cash corpus can be used for education, medical treatment, wedding etc. It can also be used as a collateral for loans to higher education.

There are some of the best life insurance products that allows you to invest in your child’s name. Some of them are endowment plans that are provide moderate return on investment that are less risky and specially meant for conservative customers. There are many unit-linked child plans that gives various fund options that you can choose from according to your risk profile while investing. Life insurance for kids come with various innovative features and riders that can enhance your investment.

The way you plan investments for your kid’s future, you would also plan for the financial security of your elderly parents. Are you wondering if you can buy a life insurance coverage in the name of your elderly parents? Well, the answer is yes! Only thing that is needed to buy insurance is something called ‘insurable interest’. This means proving your parents demise would financially impact you. It can be a great savings tool for you and your parents.

Let me shed some lights on opting insurance as an investment option in your parent’s name. Investing in a good insurance policy that can build cash value not only provides life coverage but also helps your parents in their old age to pay of unpaid debts and other expenses.

So, how much life insurance coverage your parents need?

It’s true that insurance needs vary with the age. If your parents are retired and there is no financial dependency on them, requirement of life insurance coverage makes no sense.

However, insurance investment can be made in parents name as a part of their tax-planning and as a ways of growing -estate. With the age of entry increasing up to 70-75 years for unit linked investment plans, buying insurance for parents is not really very difficult. There are online sites that provide you quotes of various plans from different investor to compare on side by side basis. When I say you can compare plans based on the quotes provided, the common question that may arise in your mind is….

Is life insurance cost an important consideration?

Yes. It is! Cost of life insurance policy is definitely an important consideration. However, that does not mean insurance plans that costs lower are always the best. It’s important to remember cost is not the only factor to be considered. Features, benefits and other riders offered by the plan are definitely to be considered. Best life insurance plans are always weighed on cost and benefit basis. A plan that can provide you maximum benefits according to your need within affordable limits should be the right plan for you.

It is also important to note that life insurance plans provide tax benefits under Section 80C of the Income Tax Act, 1961 on the premiums that you pay every year. Also, the income earned and lump sum benefits received from life insurance plans are exempted from income tax under Section 10 (10D) of the Income Tax Act, 1961.

Now, you know that life insurance can be a triple advantage plan -life protection, tax saving and wealth creation, how much to invest in it depends on your affordability or income level.

So, how to choose life insurance plans according to your income?

Life insurance investments are the crucial decisions that needs you to consider various key factors. Choosing the plan according to your income level is also one of the crucial elements.

Take into consideration your assets and liabilities, current expenses before deciding the coverage requirement. Your income and age decides how big should be your life insurance coverage. With the income multiplier method, you can estimate your coverage requirement. Once you are clear about your coverage requirement, financial goals and needs, you can select the suitable life insurance policy based on your need and affordability.

In short, life insurance is not just an important requirement for you to provide financial protection to your loved ones, but also is an ideal investment choice to create wealth for future. You have diverse options to invest in life insurance plan. What are you waiting for? Pick a perfect life insurance plan for your and make a smart investment move!

Recommended Read: Life Insurance Make a Good Investment

Janhavi Shinde
Written by Janhavi Shinde
Right from being a Flight Attendant to a Banker and now to a Content Writer, she has tasted success in all the fields. The kinda girl who loves pets and knows how to manage difficult people and events.