Accidents and mishaps are not predictable and can occur anytime, leading to irreparable loss (including loss of life). Although no one can predict the future, precautions, and preparations to deal with it can be undertaken. Life insurance policies are tools that help in ensuring that your loved ones do not have to suffer financially if something were to happen to you.
A life insurance policy is a contract between an insurance company and the policyholder, wherein the former agrees to pay to the nominee of the policy, a specific amount after the policyholder passes away. However, if the policyholder outlives the policy term, the insurance company pays the maturity benefit, or the sum assured, depending on the nature of the policy.
Let us look at the various advantages of buying life insurance.
Ensures the Financial Security of Your Family– As mentioned before, the primary benefit of taking life cover is to secure the financial position of your family when you are no longer alive. This is even more important when you are the sole earning member of your family and fund all the expenses. The beneficiary or the nominee of your policy is entitled to the maturity amount, plus the bonus accrued over the years. Some policies have a provision for paying the death benefit in the form of monthly instalments, thereby ensuring a steady flow of income to meet their regular expenses.
Takes Care of Liabilities– The maturity amount of an insurance policy can be used to pay off any pending dues or liabilities that you have. Otherwise, your family will have to bear the burden of repaying your car loan or home loan or credit card bills or any other dues. So, by taking a life insurance policy, you are building a corpus that can be used to meet your future expenses and liabilities.
Safe Investment Tool– Apart from offering insurance coverage, life insurance policies are attractive tools to save money and build a corpus for use at a later stage. You can plan your investments in life insurance policies in such a way that the maturity amount is available at a time when you need funds for a specific goal, say your child’s higher education or marriage, or when you retire. Some insurance policies, like ULIPs, offer the dual benefits of insurance coverage and wealth creation through investment in equity, debt, and other financial instruments. You can use life insurance policies as an investment tool to fulfil your long-term goals. Use a life insurance calculator to find out how much premium you will need to pay for a specific maturity value after a specific number of years.
Option to Take Loan- In case of an emergency, you can take a loan against your life insurance policy. The loan amount available is a certain percentage of the cash value of the policy or the sum assured, depending on the policy’s terms and conditions.
Tax Benefits– The premiums paid towards a life insurance policy are eligible for exemption from the calculation of the taxable income subject to a limit of Rs 1.5 lakh under Section 80C of the Indian Income Tax Act 1961. Again, the amount received by you as maturity value or death benefit is tax-free under Section 10D, subject to certain conditions.
Additional Coverage– The life insurance industry has expanded over the years to provide investors with additional protection. Several insurance companies allow their policyholders to purchase additional covers for protection against accidents, critical illnesses, and disabilities. These riders allow a policyholder to have additional coverage against risks that are not included in the original life insurance policy.
All these advantages make it clear that you must include a life insurance policy in your financial planning. It will not only offer you insurance coverage, but also provide a sense of relief and peace of mind that your loved ones will not have to suffer financially in your absence. Before you buy a life insurance policy, do check the track record of the insurance provider and their claim settlement ratio. Also, the policy amount should be adequate to provide financial security to the family. Experts recommend that you should buy a life insurance policy of an amount that is approximately ten times your current income. The aim is to take care of the inflationary impact and the additional expenses that are likely to arise in the future.