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Role of Life Insurance in Your Financial Portfolio

In this article, we are going to discuss three major roles that life insurance policy will play in your life, which you might not be aware of. Visit now to know!

  • 9,069 Views | Updated on: Apr 18, 2024

Risks and uncertainties are part of life’s great adventure—accident, illness, theft, natural disaster - anything can happen to anyone at any time. How can you protect yourself or your loved ones in case you are affected by any of these uncertainties?

Life insurance can act as a buffer in more than one way, between the financial distress that life’s uncertainties may cause and your loved ones.

Three Important Roles of Life Insurance

Life insurance can do more than just being there as a financial blanket for your family. In this article, we are going to discuss about three major roles that life insurance policy will play in your life, which you might not be aware of.

Life insurance as an “Investment”

While most people recognise the risk hedging and tax saving potential of insurance, many are not aware of its advantages as an investment option. Insurance products yield more compared to regular investment options, and this is besides the added incentives or bonuses offered by insurers. You cannot compare an insurance product with other investment schemes for the simple reason that it offers financial protection from risks, something that is missing in non-insurance products.

In fact, the premium you pay for an insurance policy is an investment against risk. Thus, before comparing with other schemes, you must accept that a part of the total amount invested in life insurance goes towards providing for the risk cover, while the rest is used for savings.

In life insurance, you get maturity benefits on survival at the end of the term. For example, if you take a life insurance policy for 20 years and survive the term, a part of the amount invested as premium in the policy may come back to you with added returns. In the unfortunate event of death within the tenure of the policy, the family of the deceased will receive the sum assured. Thus, insurance is a unique investment avenue that delivers sound returns in addition to protection.

Life Insurance as “Risk Cover”

Insurance is about risk cover and protection. To be more precise, it acts as a financial protection to help outlast life’s unpredictable losses. Designed to safeguard against losses suffered on account of an unforeseen event like death, insurance provides you with that unique sense of security that no other form of investment provides. By investing in life insurance, you ensure peace of mind and are prepared to face any financial demand that would hit the family in case of an untimely demise.

With the entry of private sector players in insurance, you have a wide range of products and services to choose from. Many of these products can be further customised to fit individual/group specific needs. Considering the premium, you have to pay now, it’s worth buying some extra sleep. Insurance firms collect contributions from many people who face the same risk.

A loss claim is paid out of the total premium collected by the insurance companies, who act as trustees to the monies. Insurance also provides a safeguard in case of accidents or a drop in income after retirement. An insurance policy can lend timely support to the family in case of an accident etc. It also comes as a great help when you retire.

Life Insurance as “Tax Planning”

Insurance serves as an excellent tax saving mechanism too. The Government of India has offered tax benefits to life insurance policies in order to facilitate the flow of funds into productive assets. Buying a life insurance plan entitles you tax benefits on:

  • Deductions under Section 80C
  • Maturity or death claim proceeds under Section 10 (10D)

Disclaimer: Tax benefits under the policy will be as per the prevailing income tax laws and are subject to change in the tax laws. You are advised to consult your tax adviser for details.

While one may not be able to avoid getting caught in the effects of life’s workings, life insurance acts like a three-headed spear, which cuts through the financial doubt, dilemma, and distress that any untoward incident may cause you and your family.

- A Consumer Education Initiative series by Kotak Life

Amit Raje
Written By :
Amit Raje

Amit Raje is an experienced marketer who has worked in various Fintechs and leading Financial companies in India. With focused experience in Digital, Amit has pioneered multiple digital commerce in India. Now, close to two decades later, he is the vice president and head of the D2C business department. He masters the skill of strategic management, also being certified in it from IIMA. He has challenged his challenges and contributed his efforts in this journey of digital transformation.

Amit Raje
Reviewed By :
Prasad Pimple

Prasad Pimple has a decade-long experience in the Life insurance sector and as EVP, Kotak Life heads Digital Business. He is responsible for developing user friendly product journeys, creating consumer awareness and helping consumers in identifying need for life insurance solutions. He has 20+ years of experience in creating and building business verticals across Insurance, Telecom and Banking sectors

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