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What are the benefits of life insurance?

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The penetration of life insurance in India is low as compared to the developed countries and it is a long time before an adequate number of people will get insured. Many people die a premature death from accident or illness and it has implications for the family of the deceased, particularly if they are the sole breadwinner. The family members may not be able to manage their present standard of living.

Life insurance can form an important part of your financial plans. There are many benefits of a life insurance policy during your lifetime and it secures the lifestyle of your family in case of early death. Some of the benefits of a life insurance policy are-

  • Takes care of your family when you are no longer alive-

Your loved ones may be completely dependent on you when you are alive. If something unexpected happens to the insured the insurance company provides compensation in the form of death benefits which is the sum insured plus the bonus accumulated over the period. This can help your spouse who can navigate tough financial conditions and also help your children, who can complete their education without much worry.

You may have taken loans to achieve your goals and may have a lot of debt. This can be a source of strain and your family would find it difficult to manage the liabilities when you are no longer there in this world. Taking a life insurance policy helps your family to meet the loan obligations even when you are no longer there.

  • Investment and wealth creation-

Some life insurance policies offer investment benefits along with insurance benefits. A part of the premium is paid towards insurance and the remaining is invested in equity and debt. This can increase your rate of return and you can invest in funds that match your investment horizon. Some policies also allow you to switch between funds. Investing this way can help you beat inflation.

There are policies that have annuity-like pension plans where you can put a certain sum every month and enjoy a steady stream of income after retirement. Retirement can be beautiful when you are free from all the work pressures and live your life peacefully. For most people who work in the private sector, there are no retirement benefits. If you start saving early, having a big retirement corpus is not impossible. When opting for an investment linked policy read the fine print to be aware of all the aspects.

  • Forced savings and Maturity benefits-

When you choose a life insurance policy and pay a premium regularly the money is invested and forces you to save which can put you in a habit of saving rather than spending recklessly. There are maturity benefits that come with the policy. When the insured person survives the term, the premiums are returned at the time of maturity, and these act as a saving component.

  • Meeting different life stage goals-

Life insurance policies can help you in planning finances. There are various life goals like a child’s marriage, paying for their education, and building a dream home. The right policy can be chosen to meet these goals.

  • Loan Availability-

If you face an emergency situation and have a financial crunch you can take a loan against your life insurance policy and borrow a certain percentage of the sum assured depending on the provisions of the policy. The major life insurance companies provide loans against the policy.

  • Insurance is cheaper when you are young so buy young and save more-

When you are young and healthy you can get the best rates for your life insurance policy. When you are older and buy an insurance policy you have to pay a much higher premium. Even when you are single you may have to provide support to your aging parents or siblings and it is good to get insured.

  • Additional Coverage against liabilities

The insurance companies allow the policyholders to purchase additional coverage above the coverage in the policy, by paying a little additional premium which is called the riders. This covers the risks that are not covered in the main scope of the policy.

The riders can cover accidents, critical illnesses, loss of income due to disability. Critical illness cover provides a lump sum payout on the diagnosis of health-related problems. This can be quite useful as you are undergoing treatment when you are ill and have no income.

  • Tax benefits of life insurance-

Persons can reduce their tax liabilities under section 80C of the Income Tax Act where the premium paid under the life insurance policy is eligible for tax deduction up to Rs. 1.5 lakhs. Other than this, under section 10(10D), the maturity insurance proceeds to the receiver may be completely tax-free. If you have riders such as critical illness you can avail of tax benefits under section 80D of the Income Tax Act.

  • Peace of mind-

When you have a life insurance policy there is peace of mind. You know that your loved ones would be protected in the event of your sudden demise and the policy amount will help them to tide over difficult times.

Life insurance helps us in many ways. It can be a tool for saving in a disciplined manner; helpful when we are alive by providing annuity benefits. There are many types of life insurance plans which a person can choose from according to his needs and life goals. If we invest in a specific plan; the unfortunate event of death helps our family to meet their financial needs. It is always good to study the different plans and riders and purchase according to the benefits of the life insurance policy that we wish to avail of.

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