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Why Life Insurance Is Always a Smart Decision

Why Life Insurance Is Always a Smart Decision
  • 10th Oct 2019 |
  • 2,075

Life insurance acts as a financial security against uncertainties such as disability, death, or other untoward incidents. If you are disabled or in case something unfortunate happens with you, your family may face financial difficulties due to income loss.

It is almost impossible to put a monetary value to your life. Nonetheless, you may determine some amount based on the loss of income in the future. The sum assured in a life insurance policy is paid to your nominees in case any covered incident occurs.

A common question you may ask is why life insurance?

Here are some benefits that make life insurance a smart investment decision:

1. Replacement of income

This is the most basic objective of a life insurance policy. A simple term plan (which is a pure life cover) goes a long way in securing the financial future of your family. In case of an untoward incident, during the policy term, the insurance company pays the death benefits. These term life insurance benefits may be used for various purposes such as repaying any

outstanding debt obligations, meeting your family’s regular expenses, paying for your children’s education or any other objective. Similarly, retirement plans provide income replacement through periodic annuities during your senior years, thereby ensuring you are financially independent.

2. Tax benefits

Even when you understand the importance of life insurance, you may not purchase one due to the premium outgo. One huge benefit of life insurance is that the premium amount is eligible for tax benefits under Section 80C of the Income Tax Act, 1961. This reduces your tax liability and helps to save money while ensuring financial protection to you and your family in case of any unfortunate incident.

The need for life 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. It is recommended that you seek the help an experienced financial expert to understand more about life insurance and coverage.

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3. Investment benefits

Insurance companies offer different types of life insurance plan. 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.

4. 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.

- A Consumer Education Initiative series by Kotak Life

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