Well-being and the safety of your family always remain your topmost priority. You work hard and earn a living to make sure that you have enough wealth to help your family members achieve their goals. Life insurance is a class of financial instrument that can help you fulfil your financial obligations to your family.
Life insurance is the answer to the questions like - What if something happens to you? Who will then take care of your loved ones? How will they look after their needs and goals?
With such an important place, life insurance plan is a financial term you should know almost everything about.
Why Buy the Best Life Insurance Plan?
The purpose of life insurance is to protect your family’s future in your absence. Life insurance becomes a must if you are the breadwinner for the family. It also gives you peace of mind as you know that your family will be secured financially.
However, safety is not the only reason to have life insurance. Here are few important reasons why life insurance is a must for you:
a. Long-term financial protection of your dependentsb. Building tax-free wealth over a long timec. Funding your retirementd. Preserving your money from inflation and taxese. Generating tax-free income
Life insurance has an investment solution for each important financial milestone you need to cover in life, ranging from a child’s goal to retirement. Thus, for one reason or the other, you will need life insurance.
Additional Benefits of Buying the Best Life Insurance Plan
Providing a life cover to you is the major benefit of life insurance, but surely not the only one. Here are other things life insurance brings to the table.
1. Addon Covers or Riders
These are the added features that enhance the existing benefits associated with a life insurance policy. You can choose these riders to increase the scope of the policy.
Typical examples of riders include accidental death benefit (ADB), critical illness rider, etc. For example, if you have chosen the accidental death benefit rider in your policy and you die in an accident, then your family would get an additional amount above the decided life cover.
2. Tax Benefits
Life insurance policies provide you with tax benefits as well. You can avail of a tax deduction of up to Rs 1.5 lakh on the premium paid by you under section 80C of the Income Tax Act. This helps lower your taxable income.
Also, the maturity amount can be tax-free under section 10(10)D of the Income Tax Act. Thus life insurance provides 2 major tax deductions.
3. Regular Income Pay-Out
Life insurance includes the facility of regular income payout that provides your family with an assured income at regular intervals. This income helps a family take care of their day-to-day expenses such as kitchen expenses, rental expenses, monthly bills (phone, electricity, etc) without much hassle.
This income thus acts as a replacement for the income that used to come from the earning member of the house.
Types of Life Insurance Plans
Based on your financial goal you can choose a different type of life insurance plan. Here are the most popular types of life insurance plans in India:
1. Term Insurance Plan
It Is a type of life insurance that provides life coverage for a specific term or a period in return for regular premium payments. Sum assured is paid to the beneficiary in case you die in the course of the policy. It is the most affordable and the simplest life insurance.
2. Savings Plan
A savings plan provides you with the opportunity to save systematically and create a corpus that can be used to meet both long term and short-term needs of your family. A savings plan involves maturity benefits in case you survive the term of the policy. as well as safe and steady returns to you.
3. Endowment Plan
An endowment plan also combines insurance as well as savings plan into one. The investment offers risk-free returns since the return is not market-linked. Here you will get the maturity benefit which is created through savings and also death benefit if you die during the policy.
4. Unit Linked Insurance Plan (ULIP)
Unit-linked insurance plans give life coverage as well as an opportunity to invest and earn returns. Thus, ULIPs provide you with dual benefits of both insurances as well as investment in a single product. Here you can choose to invest amongst the variety of funds offered according to your preference and risk-taking ability. The returns here are linked with the market. ULIPs also give you the option to withdraw regularly after the lock-in period.
5. Retirement Plans
Retirement and pension plans help you accumulate a part of your savings over time. These plans help you build your retirement corpus or get a steady flow of income or both.
Life Insurance Terms you Should Know
So now that you know about the various types of life insurance, you also need to get an idea of the various terms associated with it. These terms remain almost the same in all the life insurance policy types:
Premium is the prerequisite to any policy. This is the amount you pay to the insurance companies to keep your policy running. If you do not pay your premiums, your policy can get cancelled. A life insurance company gives you the option to pay your premiums regularly or in a lump sum.
The nominee is the person/heir that you as a policyholder nominate. The nominee is the one which receives the death benefit in case of your untimely demise. Nominee can be anyone, be it your wife, children, parents, and other family members.
Know all about a nominee in a life insurance plan.
3. Death Benefit
This is the main benefit of the life insurance policy. The death benefit is the amount an insurance company will pay to your family in case you die during the policy term. It is the amount you are covered for. The death benefit in policy is based on many terms associated with the policy.
4. Maturity Age
The age where the policy bought by you matures or expires. A policy reaches its maturity age once its decided tenure is over. After attaining this age the policy no longer exists. For example, if you have purchased a term plan for 30 years when you are 30 years old. Then the maturity age will be when you reach the age of 60.
As talked above, these are the additional benefits that increase the sum assured. These riders cover those areas which are not covered by your basic policy and thus give you a chance to enhance your policy’s scope.
Life insurance is the best investment you could do to ensure the financial safety of your loved ones. Also, there is no single period in which life insurance is beneficial. It is important at every stage of your life, be it your early twenties, or when you are married and expecting to have a child. Life insurance plays a huge part.