When you purchase a life insurance policy, you sign a legal contract with the insurance company, promising to provide your beneficiaries with a predetermined sum of money in the event of your demise.
In return, you pay recurring payments known as premiums. The amount of premium is influenced by several factors, such as your age, gender, medical records, and the amount of life insurance you buy.
Life insurance pays your beneficiaries directly, in the event of your passing. Nominees can use the benefits of life insurance to cover funeral expenses, compensation for missed wages, child’s education expenditure, personal debt repayment, and any other necessary costs. Many different insurance policies are offering distinct benefits.
There are two common types & benefits of life insurance plans:
- Pure Protection
- Protection and Savings
Pure Protection: A Pure Protection plan secures & safeguards your family’s future by providing them with a lump sum payment while you are away.
Protection and savings plan: It is the financial benefits of life insurance that allow you in making long-term financial plans like buying a home, children’s school fees, marriages, etc.
There are several insurance plans that not only reduce the risk arising due to an eventuality but also offer you additional life insurance benefits like tax advantages, savings & bonuses, etc. The right plan from an established company can help one get long-term risk protection plus savings, i.e. dual benefits of life insurance from one key solution.
What is Life Insurance?
A life insurance policy is essentially a legal agreement between an insurance policy holder and an insurance company, under which the firm agrees to pay a specified sum of money to the family or beneficiary, in exchange for a series of recurring payments over time.
Life insurance benefits offer a chance to live a peaceful life and stress-free life. It provides financial stability to you & your family. Insurance policies also offer accidental death benefits, critical illness benefits, and more. The benefits of life insurance make it an essential part of financial planning.
Some other benefits of life insurance are financial security, tax benefits, disability insurance, Investment opportunities, wealth generation, Maturity benefits, death life insurance benefits, and many others.
Life Insurance Benefits
Life insurance has so many leverages and it is considered one of the most pivotal financial tools for an individual. It provides the opportunity to accumulate wealth and gives your loved ones financial security in your absence. Besides taking care of your retirement expenses, life insurance provides you with various investment alternatives.
Let’s read about more advantages of life insurance:
1. Term Insurance
Term insurance policies provide life cover to safeguard your loved ones at the most affordable rates. Term insurance is the simplest life insurance plan that offers financial substantiality to your loved ones in your absence. It provides many life insurance benefits such as life cover against accidental death or functional disability & ensures financial assurance against severe illness.
Unit-linked insurance plans, or ULIPs, combine life insurance benefits with financial investment. It provides a wide choice of fund options & portfolio strategies. ULIP allows the policyholder to withdraw funds, routinely from the policy after five years, and offers dual benefits of life insurance such as investment to fulfill long-term objectives & life coverage protection.
3. Endowment Plan
An endowment Plan, a form of life insurance policy, is designed to pay out a lump sum upon maturity or death. Endowment plans offer life insurance benefits such as terminal bonus & reversionary bonus, which raises the maturity sum. They offer some benefits of life insurance such as maturity benefits, risk protection coverage & tax benefits.
4. Saving Plan
Savings Plans are types of life insurance plans that give individuals a chance to save, invest and accumulate capital to meet their future needs. It functions as the combination of benefits of a life insurance cover and investment. Many savings plans and protection plans offer you a fixed amount as Maturity life insurance benefits when the policy ends. Some saving plans also allow you to get consistent income throughout your policy.
5. Whole life insurance plan
It covers you up to 99 years of age. They are slightly different from typical life insurance benefits. It offers you lifetime coverage with fixed premiums, won’t expire after a definite number of years, and can’t be terminated due to health issues. A whole life plan provides exemplary benefits of life insurance.
6. Retirement and pension plan
Retirement life insurance benefits provide ways to build your pension income. You can either accumulate a retirement corpus as per your risk tolerance or get guaranteed immediate income for life by investing in a big amount. Retirement plans provide many benefits of life insurance such as easy returns, cost savings, financial backup, and tax benefits.
Advantages of Life Insurance
The vast majority of people in India ignore purchasing life insurance because they believe it is a pointless investment until an unexpected tragedy or accident brings them to realize the importance of insurance policy. Life can be incredibly unpredictable, but you can be well-prepared to handle it by investing in a quality life insurance policy. There are prominent benefits of a life insurance cover:
1. Peace of mind
The ultimate peace of mind comes from having life insurance benefits. This is because, in the event of someone’s death, a person’s family and loved ones will have a financial safety net. All of us have some financial liabilities, but having substantial life insurance coverage assures that your debts will be clear or your loved ones will get support financially in the event of your demise. Safeguarding your family’s financial future is one of the benefits of the life insurance policy.
2. Wealth generation
This benefit of life insurance plans enables you to build wealth. The policy provides good returns to fight inflation by investing your premium in different assets. Gaining valuable returns on investment & bonuses are some life insurance benefits that help in accumulating wealth.
3. Death benefits
Some extensive benefits of life insurance are that they offer compensation in the form of a death benefit in case the insured experiences an unforeseen incident that results in their family losing income. The selected nominee is given both the sum assured and the bonus that has accumulated over time. In simpler words, as long as all premiums have been paid, the life insurance benefits the policy’s nominee to receive the assured amount in the tragic event that the policyholder passes away. The nominee may utilize the proceeds obtained from the term insurance for any purpose, including regular debt repayment, loan repayment, covering the costs of raising children, or any other purposes.
Why Life Insurance is Important for Good Financial Planning?
Good financial planning must include life insurance. Life insurance also becomes significantly important when you get married, start a family, buy a home, get older, and receive a pension.
There are several benefits of life insurance for financial planning :
1. Financial Security
The sense of financial security comes from having life insurance benefits. This is because, in the event of someone passing away, their family and loved ones would have a financial safety net. All of us have some financial liabilities, but having enough life insurance safeguards your loved ones or debts from being paid off in the event of your demise.
2. Child’s future security
Future security for children is aided by life insurance. If you time your policies correctly, you can utilize the earnings from your life insurance policy to pay the costs associated with enrolling your child in a prestigious university. Insurance like ULIP might assist you in increasing your wealth sufficiently so you can give the best education to your child. The benefits of life insurance policies can also assist in covering your child’s wedding expenses.
3. Prevent loan burden
Only some policies can use this option. Life insurance benefits the policyholder with an opportunity to borrow a specified amount from the insurance company to pay their mortgages and unpaid loan. Life insurance shields your loved ones from the burden of debt in case of any eventuality.
4. Retirement Planning
Life insurance offers retirement strategies that let you maintain your dignity, earn a pension and live your life on your terms. You and your spouse have the advantage of getting a persistent pension for life because of the favorable benefits of a life insurance plan. With appropriate planning & saving through a retirement plan, you will build a solid retirement corpus, which can be used to purchase a fixed pension plan for life and thus, protect yourself from inflation.
5. Tax Benefits
Insurance policies offer dual tax benefits. These tax benefits of life insurance under section 80C reduce the amount of taxable income by making the paid & tax-deductible policy premiums. Section 10(10D) guarantees that any payouts made under the policy will always be tax-free. The tax life insurance benefits make it a strong incentive to buy a policy.
How Life Insurance is Suitable for Fulfilling your Requirements?
Life insurance is not just for providing financial substantiality; it may also act as a vital financial tool to achieve one’s life goals and financial needs. These goals could involve buying a home or automobile, wedding planning, a child’s education, financial security during illness, retirement planning, etc.
Let us explore how a life insurance plan fulfills our financial requirements :
1. Savings for your child’s education
Every parent wants to provide their child with the quality education they can have. Life insurance benefits ensure that even after your passing, your child will have the finest education & future. The vast majority of Indians pay for their children’s education. Indian parents often spend more than half of their remuneration for each child on their schooling. Thus, saving for a child’s education is one of the top priorities for a parent. You can fulfill this financial demand with the benefits of life insurance plans. These plans, often in the form of unit-linked insurance plans, aid in the expansion of your investments and assist you in securing your child’s educational milestones.
2. Financial security during illness
Most Indians spend the majority of their income on medical expenses. There is a high chance that when you are ill, whether it be a slight or chronic disease, you will not be able to work & support yourself. However, even when you are dealing with illness, your family still has financial demands. Some benefit of life insurance plans is that they provide financial security during severe illness. When serious health issues are diagnosed, critical illness insurance plans offer a good amount of payment. This one-time payment is paid only after diagnosis. Therefore, after receiving treatment, there is no necessity to file bills & wait for claims. Critical illness plans cover both your household’s expenses & your medical treatment during your no-income period.
3. After retirement security
Since the majority of Indians work for private firms, there is no pension benefit. Because of this, retirement turns out to be more of a worry than an exciting prospect. Thanks to life insurance benefits provided by retirement plans, you can receive a pension, sustain your dignity, and live your life on your values without needing anyone.
Retirement plans offer numerous benefits of life insurance. Retirement plans give you and your spouse the advantage of earning a steady pension for life. If you begin early retirement savings at a young age, you would be able to build a healthy retirement corpus that you can use to buy a fixed pension plan for life, safeguarding yourself from inflation.
Benefits of Life Insurance – FAQ
What is life insurance?
Ans. Life insurance is a legal agreement between you and an insurance provider, in exchange for your regular premium payments, the insurance company will pay a lump sum of money known as a death benefit to your beneficiaries after your demise.
Why life insurance policy is needed?
Ans. Life insurance is needed because it offers you a savings plan for the future & you will have a consistent source of income after retirement. Life insurance also assures that you will have additional income even when your proceeds will reduce due to chronic illness or accident.
How much does life insurance cost?
Ans. Your age, your health, the type of policy you select, the amount insured, and the benefits you anticipate receiving when your policy matures.
Is having life insurance necessary?
Ans. One of the things to learn about life insurance is that even though it is not necessary, getting coverage is a wise financial decision. It is true when you solely take responsibility for your spouse, parents, or kids. If you pass away, your family will have financial security because of the life plan. Some of these options include the ability to add riders for additional coverage or to withdraw a portion of the accrued corpus to meet financial expenses like child education or a wedding.
How many different options are available to pay my premium?
Ans. There are many alternatives available for paying your premiums. You can pay your recurring premium in a month, in a quarter, even in half-year, or every year. You can even pay all your premium at once. A monthly premium is more convenient, as the amount is relatively small & it is easier to monitor and prepare you for a more frequent premium payment.
What will be the consequences if I don’t pay the premium on time?
Ans. In case you are unable to pay your premium amount on the due date. An additional grace period of 30 days is provided after the deadline for premium payment but if you still fail to pay, all the benefits will be suspended. To activate your plan again, you need to pay an amount.
How can I calculate term life insurance?
Ans. One of the most frequently asked questions about term life insurance is how it is different from conventional life policies. The term insurance is a pure life insurance policy that provides your beneficiaries with only death benefits. There are no maturity benefits available if you survive the policy’s tenure. It is a cheap and simple approach to take advantage of expanded coverage.