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Why Life Insurance is Always a Smart Decision?

If you are looking for a way to protect your loved ones and save money on your taxes, life insurance can be a good option for you. Read the blog to learn more about the benefits of life insurance and to find a policy that meets your needs.

  • 4,615 Views | Updated on: Mar 13, 2024

In today’s uncertain world, where financial stability and security have become paramount, individuals are constantly seeking ways to safeguard their future. One approach that has gained significant popularity is saving through life insurance investment. While life insurance is commonly associated with providing a safety net for loved ones in the event of a tragedy, it also offers numerous advantages as a powerful savings tool.

Key Takeaways

  • Life insurance provides economic security and peace of mind, ensuring that your loved ones are taken care of in the case of your demise.
  • It covers various financial aspects, such as replacing lost income, paying off debts, covering funeral expenses, and managing estate taxes.
  • Consider factors like age, financial responsibilities, dependents, and overall financial goals before selecting any policy.
  • Life insurance offers dual benefits of protection and savings, tax benefits under Section 80C of the Income Tax Act, investment opportunities, and loan protection, making it a smart investment decision for your family’s financial well-being.

Life is a beautiful journey of joy, love, and unexpected twists. While you cherish every moment, it is essential to plan for the uncertainties that lie ahead. This is where life insurance comes into the picture. Life insurance plays a crucial role in offering financial security and surety to individuals and their families.

With this blog, you will be able to delve deeper into the topic of life insurance and explore its various types, ensuring that you make informed decisions for the well-being of your loved ones.

What is Life Insurance and Its Need?

Life insurance is a commitment between a person and an insurance company where the insurer promises to pay a specific share of money to the designated beneficiary(ies) in the event of the insured person’s passing. This financial protection helps safeguard the family’s future by providing funds to cover expenses, debts, and the loss of income resulting from the insured’s death.

The need for smart investments such as life insurance varies depending on individual circumstances. If you are the sole earner in your family, your demise could leave your dependents without a source of income. Life insurance can provide a death benefit that can replace your income and help your family meet their financial needs. It can also help cover any outstanding debts, such as a mortgage, car loans, or credit card debt, that you leave behind.

Before buying any plan, it is important to assess your situation and consult with an insurance professional. It will help you determine the appropriate coverage amount and policy type that best suits your needs.

Types of Life Insurance Policies in India

Although life insurance cover for life loss and related issues, there are several types of insurance plans available in the market that are inclined to some particular benefit. Let us take a look at some of the most common types of life insurance.

Term Insurance

Term insurance is the most affordable and simplest form of life insurance. It offers coverage for a predetermined period of time, typically 5 to 40 years. The policy’s nominee will receive the sum assured in the case of the insured’s untimely death while the policy is in effect.

Endowment Plans

Endowment plans are smart investment choices that combine the elements of insurance and investment. They offer a death benefit to the nominee in case of the insured’s demise. Additionally, if the policyholder survives the policy term, they receive a maturity benefit, which includes the sum assured along with the accumulated bonuses.

Also Read: How does an endowment plan work?

Unit Linked Insurance Plans (ULIPs)

ULIPs are a unique type of life insurance policy that provides both life cover and investment opportunities. A portion of the premium is assigned towards life insurance, while the remaining amount is invested in different market-linked funds, such as equities and bonds. ULIPs offer policyholders the flexibility to switch between investment funds based on their risk appetite.

Money-Back Policies

Money-back policies provide periodic payouts to the policyholder during the policy term. These payouts, known as survival benefits, act as a source of regular income. If the policyholder survives the entire term, they receive the maturity benefit, which includes the sum assured along with the accumulated bonuses.

Pension Plans

Pension plans, or retirement plans, help individuals build a corpus for their post-retirement life. These plans enable policyholders to contribute regular premiums during their working years, and upon retirement, they receive a lump sum payment or regular pension to support their financial needs.

Why One Should Opt for a Life Insurance?

The need to invest in insurance cannot be questioned especially if you are the sole earning member of the family. It is equally important to avail of adequate coverage based on the number of dependents, current lifestyle, debt obligations, and other financial goals. Here are some benefits that make life insurance a smart investment decision:

Dual Benefits of Protection and Savings

Unlike traditional savings accounts or investment options, life insurance presents a unique proposition by combining the benefits of protection and savings. While the primary objective of life insurance is to offer a death benefit to beneficiaries, it also allows policyholders to accumulate cash value over time. This cash value grows tax-deferred, meaning policyholders can enjoy the potential for long-term financial growth while simultaneously ensuring their loved ones are financially protected.

Tax Benefits

One huge benefit of life insurance is that the premium amount is eligible for tax benefits under Section 80C of the ITA (Income Tax Act) 1961. This reduces your tax liability and helps to save money while ensuring financial protection for you and your family in case of any unfortunate incident.

Investment Benefits

Insurance companies offer different types of life insurance plans. These include pension plans, whole-life policies, growth plans, and guaranteed income policies. Such plans not only offer life cover but also provide maturity benefits that ensure the financial stability of your loved ones. Whole-life plans offer coverage until the age of 100, while guaranteed income policies help meet financial goals at different stages in your life. Unit-linked insurance plans (ULIPs) invest a portion of your premium in financial products like equity, debt, and government securities. These plans help you build a corpus over a longer duration of investment.

Loan Protection

You may probably have long-term liabilities, such as a home loan. In case of an unforeseen circumstance, your survivors will have to repay the loan, which may result in severe consequences. When you buy life insurance, the policy benefits become available to your nominees in your absence. This will allow them to repay the outstanding loan amount without falling into any financial distress. Additionally, you may avail of a loan against your policy after a certain number of years from the date of purchase. This helps you meet any urgent financial requirements at an affordable interest rate.

Did You Know?

The death benefit from a life insurance plan is tax-free. This means that your nominees will not have to pay any taxes on the money that they receive.

Conclusion

Life insurance plays an important part in financial planning in India. It acts as a shield for your loved ones, ensuring financial security during trying times. By comprehending the various types of life insurance policies available, you can make an informed decision that aligns with your goals and secures the future of your family. Remember, life is uncertain, but a life insurance plan assures that your family is well taken care of, even when you’re no longer there to do so yourself.

- 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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