There are numerous benefits of a life insurance plan. Read ahead and find out.
A life insurance plan is indeed a smart investment option. Life is uncertain and it is difficult for family members to manage in your absence. Life insurance plans not only offer financial protection, but also provide income replacement when you are not around. Available at an affordable price, a life insurance plan is the best protection option for your family.
Why is Life Insurance a Smart Investment?
Here’s why having a life insurance plan is a smart choice-
Replacement of Income - As mentioned above, life insurance plans provide replacement of income in case of death of the policyholder. This is the basic benefit offered by all life insurance plans. Term plans are designed to provide financial protection at just nominal premiums. In case of death, the sum assured is directly provided to the nominee/family in a lump sum or installments. For individuals who are about to retire, there are multiple retirement plans which offer income replacement in the form of annuity payouts.
Investment Benefit - Not all life insurance plans are the same; there are whole life plans, pension plans, guaranteed income plans, growth plans, ULIPs etc. which offer comprehensive protection along with life cover, maturity benefit, guaranteed returns, etc.
Loan Protection - Life insurance plans can be also be held as collateral to avail long term loans. Also, the sum assured received can also be utilised to pay outstanding loans in case of death of the policyholder.
Tax Benefit - As per Section 80C of the Income Tax Act, 1961, a deduction up to Rs. 150,000 towards premium payment is considered eligible for tax deduction.
Needs and Benefits of buying Life Insurance
Here are a few reasons to buy life insurance:
Family Matters - If you are the sole breadwinner of the family, it will become difficult for your loved ones to sustain their existing lifestyle. Life insurance provides the much needed financial security in your absence. The sum assured can be utilised for your child’s life goals like higher education or for your spouse’s business venture.
Debt Recovery - A life insurance policy is an excellent countermeasure against outstanding loans or financial liabilities.
Long Term Goals - A life insurance policy can help you in buying a new home or plan for retirement. Many policies come with diverse investment options which will help you achieve your long term goals. Many policies are investment based and provide good returns in the long-run.
Retirement Planning - With a retirement specific life insurance plan, you can ensure to receive a regular stream of income post retirement. Annuity plans are designed to provide monthly income post retirement.
The Earlier, the Better - Yes, this holds true for life insurance policies. Even if you are single, independent, without any loans or burden, it is important to purchase a life insurance plan at a younger age. Insurers consider age as a very important factor while determining the annual premium. The younger the age, the lesser the premium. If you are young, fit and leading a healthy lifestyle, you can get the best premium rates on your life insurance policy.
Tax Saving Benefits - You can save income tax with insurance policies. Premium paid towards a life insurance plan is eligible for a maximum of Rs 1.5 lakh under Section 80C, and for tax-free proceeds on death/maturity under Section 10(10D) of the Income Tax Act, 1961.
Cash Value - Many life insurance policies offer cash value and guaranteed returns. In an investment plan, be it traditional or unit-linked plan, you are required to pay premium which is higher than the cost of insuring you. This extra money which is accumulated is invested and when it acquires cash value, you can draw income from it.
Peace of Mind - Buying the correct life insurance plan ensures that your family is secured in case of your unfortunate demise. This brings peace to your mind because your family members are safe and secured, even after your demise.
How do I calculate Life Insurance needs?
As a basic assumption, your life insurance cover should be 20 x your annual income. Also, you can purchase different types of plans specific to a life stage - Pension plan for retirement, endowment plan for savings, investment plan for wealth creation. In addition, it is advisable to ask yourself the following questions:
- How many family members are dependent on you?
- How much income will be sufficient to take care of my family’s basic necessities?
- Are you the sole breadwinner of the family?
- Do you have other earning members in the family?
- Do you have any existing savings?
- Do you have any existing loans or outstanding debts?
- What are the future expenses - higher education, marriage etc.?
- Are there any senior citizens in the family?
- Is there a risk of pre-existing diseases?
- Have you planned for any future expenses?
- What kind of lifestyle does your family have?
- No. of Non-working spouse/family member
- Rate of inflation
Once you have the following expenses in mind, it will be easier for you to calculate the amount of life insurance for you and your family.