What is Life Insurance?

A life insurance plan is a contract between an insurance policyholder and an insurance company, where the insurer promises to pay a sum of money in exchange for a premium after a set period or upon the death of an insured person. Life insurance offers you and your family financial protection. Some policies also offer optional add-ons, such as critical illness benefit, accidental death benefit, and more. The importance of life insurance cannot be ignored in ensuring the financial safety of your loved ones.

Benefits of buying life insurance

Life insurance protects your family members' financial interests in your absence. It gives you peace of mind and confidence and helps you save taxes. There are several benefits of life insurance. Let us take a look at some of them:

Financial security: Life insurance products can provide you and your loved ones with financial security. You can financially secure your family by choosing a substantial life cover so that they can maintain their standard of living in your absence

Wealth creation: These plans help you create wealth over time and build savings. Life insurance plans can be used to save for your future needs. They offer options to cover different types of risks and goals

Disciplined investment: With regular premium payments, life insurance plans inculcate financial discipline. They offer unique investment opportunities for every risk type with a wide range of products, such as unit linked investment plans, guaranteed savings plans, endowment plans, and more

Retirement planning: Life insurance products like annuity plans, savings plans, endowment plans, and other help you build a retirement pool. These plans offer guaranteed income on maturity and help you secure your retirement with adequate savings

Tax Benefits: Term life insurance also provides tax benefits to individuals but your aim shouldn't be to buy term insurance to save taxes.

Irrespective of that, life insurance does provide tax benefits to policyholders. Under Section 80C of the Income Tax act, 1961, you can be eligible for deductions up to Rs. 1.5 lakh per annum on premiums paid subject to provisions stated therein. Additionally, under Section 10(10D) of the Income Tax Act, 1961, maturity benefit, surrender or death benefit of term life insurance will be exempt from income tax, subject to fulfilment of product terms and conditions.

Reasons to buy life insurance

You can also buy life insurance policies online. You can compare different life insurance products, their premiums, sum assured amounts, features, and more on the internet. You can also compare the claim settlement ratio of several insurance companies and pick a suitable life insurance policy. Life insurance can be useful for several reasons like:

It protects your loved ones and allows them to lead a dignified and comfortable life in your absence

It lets you create an additional source of income

to meet your goals

It helps you cover medical costs with add-on coverage

It offers you peace of mind

It helps you save for your old age

It ensures a regular stream of income even after retirement

It helps you provide for your child's education and future needs

What are the different types of life insurance?

Types of life insurance in India:

Term life insurance plan: Term insurance plans offer your nominee a fixed sum assured amount in exchange of regular premiums, in case of an unfortunate incident during the policy term. It is a pure form of insurance that provides death benefit to the nominee in case the life assured dies. It acts as a financial cushion for your family to fall back on if there was anything to happen to you. Imagine your family having to live on half of what you earn or worse without any regular monthly income. Life can take an unexpected turn any moment and your family's quality of life can suffer without the protection of term life insurance. Decrease in the level of income can negatively impact their lifestyle and completely derail the life goals you have set for them. Generally, term insurance plans don't provide maturity benefit if the policyholder survives the policy term. Term insurance plans are good and worth every penny you spend. Whether you are the sole provider in the family or have an earning spouse, having the protection of term life insurance makes complete sense.

Endowment plan: An endowment plan allows you to build risk-free savings and protect the financial interests of your family in your absence. This combination provides financial support for the family of the deceased policyholder any time before maturity and good lump sum amount at the time of maturity for the surviving policyholders. This plan also takes care of liquidity needs through Its loan facility. An endowment life insurance policy is a policy that couples the benefits of the concept of life insurance with the concept of savings. These policies, unlike pure term insurance, provide death and maturity benefits. Many of these life insurance policies also come with surrender values, which is a certain percentage of the premiums paid, and paid up values. The death benefits with these policies is the sum assured under the policy which can start from Rs. 50,000 and go on to any amount, depending on approval from the insurance underwriters.

Child Plan: A child plan is an insurance investment plan that helps you save money and create wealth in order to pay for the important milestones in your child's life. Education and marriage are generally two important milestones in a child's life. These plans are structured in such a way that you get a lump sum amount or periodic payments after a certain amount of time. Additionally, if your child has dreams of starting their own venture or fulfilling different milestones of their own, the returns from your child plan can prove to be very beneficial.

Annuity plan: An annuity plan is a type of retirement plan that offers you a regular payment in return for a lump sum investment. In simple words, you pay the life insurance company a premium in lump sum and your money is returned to you as regular income either immediately or after a certain period of time. The life insurance company invests your money and pays back the returns generated from it to you payouts.

Unit linked insurance plan (ULIP): A unit-linked insurance plan offers investment and insurance under the same policy. They are neither insurance nor investment. ULIP is undoubtedly the easiest way for a layman to understand this product. It combines insurance and investment in a way that a portion of the premiums goes to secure life insurance. So, where do the remaining premiums go? A debt and equity securities portfolio is invested in varying proportions by the insurance company that offers such plans, just as a mutual fund would. A ULIP simultaneously protects you and helps you grow. Additionally, it ensures that your financial objectives are met.

Who needs life insurance the most?

Life insurance can be a must-have financial tool for the following people:

Newly married couples: Life insurance can offer newly married couples peace of mind and financial security. It can help your spouse live their life comfortably and meet all financial liabilities

Parents with young children: Parents with young children can purchase life insurance to ensure that their children have a financial cushion to fall back on if they are not around to take care of them. Insurance plans can also help parents save for their kids' future needs

People nearing retirement with fewer savings: Life insurance plans allow you to save and invest your money. You can opt for low-risk options and secure your retirement and old age

Business owners: Life insurance benefits can help your family carry on your business in your absence. The pay-outs can also help them pay off creditors or clear your debts.

Here are some of the most important factors that you must consider before choosing a sum-Assured amount for life insurance:

Debt: Financial liabilities like loans can become a burden on your family in your absence. Take cognizance of your debt and pick a life insurance amount that can be used to repay it

Dependents: Consider the expenses of dependent family members like minor children and ageing parents. Different circumstances may necessitate different coverage needs. So, pick an appropriate amount of life insurance as per their lifestyle and requirements

Financial goals: Financial goals like retirement planning, children's higher education, marriage, medical expenses, and others must also be considered while selecting the sum assured for life

Age: Different stages of life present different financial needs. Hence, keep the age of your dependents in mind while calculating your life insurance coverage