Having a life insurance policy is very vital. Irrespective of how good and comfortable the life you currently live, you don’t know what the future holds. Having a life insurance policy makes sure that your family members don’t struggle after you die.
The purpose of life insurance is to ensure that your family can maintain their standard of living and achieve their goals even after your death. This protects your loved ones financially.
But apart from providing a safety net to your family, there are other ways in which you can use your life insurance policy. Life insurance can benefit you in your life as well.
Types & Benefits of Life Insurance Plans
Life insurance is a basket of diverse financial instruments that aim to fulfil one or the other investment need in your life. Here are a few of the most popular life insurance plans and their benefits:
|Term Life Insurance||Long-term financial protection for the family against the untimely demise of the breadwinner, at affordable cost.|
|Endowment Life Insurance||Provide a safe venue to invest money gradually for an important future goal.|
|Moneyback Insurance||Helps generate a cash flow. Useful in meeting multiple goals on the timeline|
|Whole Life Insurance||Financial protection & legacy goals may also offer additional financial assistance at retirement|
|Unit Linked Insurance Plans (ULIPs)||Wealth building and goal protection. Opportunity to invest in multiple assets for market-linked growth|
|Annuity Plans||Help to generate income out of a large corpus. Very important and useful in post-retirement life|
Depending on the type of insurance you are investing in, you can also have other uses of life insurance plans:
1. Can be used to pay the debt
Suppose you have taken a loan to buy a new car, or for making a new home. These loans take time to completely pay off. If you die unexpectedly, you leave the burden of paying those debts on your family. Now with you gone and there is no income, it will be a huge trouble for the family to pay the loan. But if you have purchased life insurance, the death benefits the family will receive can be used to pay off your existing loans or any personal debts you may have.
2. Helps in replacing your income
Once you lose your life, your income is gone too. This provides more trouble to your family if you were the only earner. Your family has to still carry on with their lives and thus expenses will occur. Life insurance thus brings in much-needed financial security. The death benefit that your family will get can be used to cover expenses that are essential for the existence of your family members such as the kitchen expenses, rent, school fees of children, etc.
3. Using the cash value during financial emergencies
Many life insurance policies such as ULIPs (Unit-linked insurance plan) offers an opportunity for you to invest in the market securities and build your wealth. Though a little expensive, these allow you to build a cash value. This value can be used by you during the course of the policy as well.
Insurance companies provide an option to withdraw a certain part of your investment if you are in need. Some companies also provide a loan option under which you can take a loan against your accumulated cash value.
Note that both withdrawal and loans will reduce your sum assured.
4. Provides financial strength to achieve family goals
In your lifetime you go through various phases and achieve various milestones. As you age you start to have more aspirations and goals to achieve. Life insurance helps you achieve these goals due to its long-term nature. Some insurance policy types such as ULIPs are linked to investments and can grow your corpus, this strengthens the financial position that can help you attain various goals such as buying a house, ensuring higher education of your child, other big expenses, etc.
5. Insurance can cover your illness
Life insurance policies give you an option to add extra benefits in the form of a rider. A rider includes benefits that are beyond the scope of the basic policy. Riders such as critical illness riders and disability riders can be added with the policy that can be used to cover the expenses that come if you, later on, suffer from a critical illness such as cancer, heart disease, etc.
This ensures you don’t dig a deep hole in your pocket in case you get sick.
6. You can create an income source for retirement
As you retire your regular income is no longer with you. Strong financial planning is required to judge your income and expenses so that you can live well after retirement. A pension plan will provide you with enough to live your retirement happily.
Also, many other life insurance policies such as ULIPs and endowment/money back plans have a cash component and a maturity value involved apart from the death benefit. This can prove as a good addition to your existing retirement or pension income. This can be used for meeting large expenses as well as emergencies.
7. Helps in saving taxes
Taxes through mandatory hurts every individual. You also want to pay as little tax as you can. The powerful use of a life insurance policy is that it helps in tax savings. Premiums that you pay towards your life insurance policy are tax-deductible up to Rs 1.5 lakh under section 80C of the income tax act.
Also, the death benefit that your beneficiaries get when you die is tax-exempt, under section 10(10)D of the Income Tax Act.
8. Helps in protecting your business
Life insurance is not limited to protecting your family. Some life insurance policies extend themselves to your business as well. If something were to happen to your partner, you can purchase the dead partner’s share in the business with the proceeds from your life insurance policy. The pay-out will be given to the deceased partner’s family without giving them the share of the business.
For the correct share of each partner, proper appraisal of business must be done. This also minimizes the risk of having disputes later on.
9. Helps to leave a legacy for grandkids
Legacy is the final financial goal you would want to achieve before leaving the world. Life insurance plans with a lifetime holding period are some of the best solutions in this direction.
For example, you can buy Invest 4G from Canara HSBC Oriental Bank of Commerce life till the age of 99. Within this period, you would have – Built your retirement corpus in the plan, drawn a tax-free pension from it, and still leave a substantial sum assured for the nominees upon natural demise.
Yes, it’s a known fact that a life insurance policy will provide financial safety to your family after you are gone. But the above points shed light on the various other things that you can use life insurance for.
Life insurance involves various types which you can choose according to your need. Plans such as ULIP, endowment, and term plans have different uses, know about these plans so that you can use your life insurance powerfully.