What is life insurance?
Understanding why you need life insurance starts with knowing what it actually means. Life insurance is a financial arrangement that helps you transfer the risk of financial loss caused by your untimely death to a life insurance company. In simple terms, it acts as a risk transfer tool. Instead of your family bearing the entire financial burden if something happens to you, the insurer steps in to provide financial support.
When you purchase a life insurance policy, you enter into a contract with an insurer. You agree to pay a fixed amount regularly, known as the premium, for a specified number of years, referred to as the policy term. In return, the insurer pays a pre-decided amount, known as the sum assured or death benefit, to your family (nominees) if you pass away during the policy period. This ensures your loved ones remain financially protected even in your absence.
Many life insurance plans also offer a maturity benefit. This means that if you survive the policy term, you receive a payment from the insurer, which can help you achieve financial goals such as buying a house, funding education, or planning for retirement.
There are different types of life insurance plans to suit varied needs. These include:
- Term insurance plans (pure protection)
- Unit-Linked Insurance Plans (ULIPs) that combine life insurance and market linked investment
- Endowment plans offering savings and protection
- Whole life plans that provide lifelong coverage
- Child insurance plans for your child’s future
- Pension plans for post-retirement income
Why do you need to insure your life?
One of the main benefits of life insurance is that it gives both you and your family a sense of financial security. How, you ask? Here’s how.
Take the case of Amit. He is employed in a well-paying job and earns quite well. Also, he’s the sole breadwinner of his family. One day, he gets involved in an accident and as a result dies, leaving his family distraught. Since he was the sole breadwinner, the family is now unsure of meeting their monthly expenses.
See, how the life of Amit’s family changed all of a sudden? All of this could have been avoided if only Amit had just invested in a life insurance plan.
Now let’s say that Amit had invested in a life insurance plan. Following his death, the insurance service provider would have paid out the death benefit sum assured to his family, which they could have used to make up for the loss of income that they had to suffer. Although Amit is no more, he ensured that his family was well taken care of by simply investing in a life insurance plan.
This is one of the primary reasons why you should ensure that you insure your life. With an adequate life insurance policy, you can continue to secure your family’s financial future even when you’re not around.
Benefits of Life Insurance
That said, fear of life and inadequate financial security shouldn’t be the only reason for insuring your life. As a matter of fact, other than financial security, there are many additional benefits of life insurance as well. Here’s a brief look at a few of them.
It has an investment component as well:
As you’ve already read above, many types of life insurance plans come with maturity benefits. This means that if you survive till the end of the policy tenure, the insurer would be obligated to pay you a certain sum of money. By investing in a life insurance plan, you can not only financially protect your family, but can also create wealth in the process.
You can further your life goals:
The amount that you receive at the end of the policy tenure can be used to satisfy your life goals. With the maturity benefits in your hand, you can take that vacation that you’ve been planning for all along or purchase your very own house. The choices are endless.
You get to enjoy several tax benefits:
Did you know that you can save tax by investing in a life insurance plan? Yes, you read that right. The premiums that you pay towards a life insurance policy can be claimed as deductions under Section 80C of the Income Tax Act, 1961. That’s not all. Under section 10(10D) of the Income Tax Act 1961, the maturity benefits and the death benefit paid out to you or your family by the insurer are also not taxable. The aforementioned tax benefits are subject to the conditions outlined in the Income Tax Act, 1961.
Protect Your Family’s Financial Future
Life insurance provides a payout to your family in the event of your death, helping them manage ongoing expenses such as rent, utilities, and education costs. It provides monetary support during difficult times.
Helping Cover Loans and Liabilities
If you have outstanding debts, such as a home loan, car loan, or personal loan the death benefit can be used to settle these obligations, preventing financial strain after your demise.
Retirement Planning
Some life insurance plans, such as endowment plans, provide a savings component along with the protection of life insurance. These payouts can supplement your savings, helping you manage daily expenses, medical costs, and other post-retirement needs without depending solely on others.
Optional Riders
Life insurance policies often offer riders, such as critical illness benefit rider and accidental death benefit rider , for enhanced coverage. These add-ons are available with additional nominal premium and provide additional financial support during specific emergencies, so you and your family receive adequate protection beyond the standard policy benefits.
Key Takeaways
The death benefit from Life insurance plans may help replace lost income and help cover your family’s daily financial needs, and future expenses if you pass away. It guarantees financial continuity and independence for your dependents.
Another key reason why you need life insurance is that it helps you achieve financial goals through investment-linked benefits with plans like ULIPs, supporting milestones such as education, housing, or retirement.
Tax deductions under Section 80C (available under the old tax regime ). Besides this, the sum assured/death benefit is tax-exempt under Section 10(10D). Thus, life insurance not only offers financial protection but is also helps in efficient tax management.
Conclusion
You need life insurance to protect your family from financial hardship in case of your death. The death benefit paid can help in managing household expenses, financial obligations , and meet future goals such as your child’s education or your spouse’s retirement. Buying a policy early helps you lock in lower premiums and bigger coverage.
Don’t delay! Compare plans carefully, calculate your required coverage, and take the next step toward protecting your family’s financial future today.
FAQs
1. Should you invest in life insurance only for the tax benefit option?
Buying life insurance solely for tax savings is unwise. Its real value lies in ensuring financial protection, adequate coverage, and long-term security for your dependents, not minimizing tax liability.
2. How much time does it take to get a life insurance death benefit claim?
Death claims not requiring investigation must be settled within 15 days from the date of claim intimation. Death claims requiring investigations, decision and payment must be completed within 45 days from the date of claim intimation.
3. How does life insurance provide financial security to my family?
The death benefit from the life insurance plan paid to your nominee (such as a family member ) can help cover expenses such as household expenses, education costs and other financial liabilities.. Death claims requiring investigation must be settled within 45 days from the date of claim intimation. If the insurer fails to pay within these timelines, the claimant is entitled to interest at bank rate + 2 % from the date of intimation until the date of payment.
4. How does life insurance help in paying off debts or loans?
The death benefit can be used to repay outstanding debts, such as a mortgage, car loan, or personal loan, preventing your family from facing financial strain or asset loss.
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