Life insurance is more than simply a financial product; it is a tool for ensuring financial stability and peace of mind. It is a safeguard that stands between unanticipated situations and the future well-being of your family. In India, where family values are highly valued, a life insurance policy is a vital component of financial planning.
Why avail of life insurance?
- Financial security
Life insurance is a contract between the policyholder and the insurance company in which the insurer agrees to pay a certain amount of money to the beneficiary upon the death of the insured person. This death benefit is like a financial safety net which guarantees your family that the lifestyle they are accustomed to can be maintained even after you are gone. It can pay for the daily living expenses, children’s tuition fee, spouse’s retirement, and any other financial commitment.
- Debt repayment
If you have any outstanding debts like housing loans, car loans, or personal loans, then a life insurance policy can help your family to pay back these debts without any financial stress. The insurance paycheck may be the only thing that keeps your family from having to sell assets or make drastic lifestyle changes to fulfil these debt obligations.
- Long term investment
Endowment plans and unit-linked insurance plans (ULIPs) offer a double advantage in terms of insurance and investment. The premium you pay is not only for the life coverage but also for investing in different debt and equity instruments. As time passes by, this investment accumulates into a large sum that you will be able to utilise to achieve your long-term goals, like buying a home, paying for your child’s education, or retiring.
- Retirement planning
Retirement-related life insurance policies, such as pensions or annuities, can be a reliable source of income during your retired life. Such policies normally accumulate a corpus during the working years (accumulation phase) and then start giving you a regular income from your retirement age (distribution phase). This can be another source of income for your retirement savings plan, and you will have enough funds to live comfortably once you retire.
- Tax benefits
Life insurance not only provides financial security but also has tax benefits. In India, the premium paid towards life insurance policies is eligible for tax deduction under Section 80C of the Income Tax Act up to a maximum of Rs 1. 5 lakhs. Not only that, the death benefit or maturity proceeds from a life insurance policy are fully tax-free under Section 10(10D), subject to certain conditions.
- Child’s future
In the current scenario where education costs are increasing, and inflation is rising, it is essential to plan for your child’s future needs. Life insurance policies can be designed to help you to create a financial cushion for specific life needs, such as your child’s higher education and marriage. Child plans are a type of life insurance that provides life cover as well as invests the premium to create a corpus in the long run. The policy guarantees that the corpus is paid out at the most important milestone of your child’s life, even if you are not there, thus ensuring your child’s dreams are not compromised.
The importance of regularly reviewing your life insurance policy –
Life changes, and so do your financial needs. Thus, it is very important to review your life insurance policy from time to time to make sure it is still in line with your financial goals. The reviewing process is designed to adapt the coverage based on dynamic situations like marriage, childbirth, buying a house, or changes in income.
Ways to review life insurance properly –
- Check your coverage
Coverage is the death benefit that your family will get in case you die. It is also crucial to make sure that this amount is enough to cover all the financial needs of your family, including daily living expenses, educational costs for children, and any old debts. As a general principle, your life insurance coverage should be in the range of 10-15 times your annual income.
- Update nominee details
The nominee is the person who will be the beneficiary of the policy benefits in the event of your death. It is very important to keep this information up to date, especially after major life events such as marriage or the birth of a child, to avoid any legal problems at the time of claim settlement.
- Review the policy term
The policy term should be aligned with your financial commitments. As an example, if you have a home loan for 20 years, your policy term should be at least that long so that your family will not be burdened with the repayment of the loan in case of your sudden death.
- Assess investment component
If your life insurance policy also serves as an investment tool, like in ULIPs or endowment policies, it is very important to monitor its performance. Review the returns the fund is giving you and consider changing fund options or rebalancing if the performance is not up to your expectations.
- Review riders
Riders are add-ons to the basic life insurance that you can use to broaden the coverage of your policy. These could be, for example, critical illness riders, accidental death benefit riders, or waiver of premium riders. You need to revise these riders as your needs and lifestyle change. For instance, if you have just begun a risky job, you might want to add an accidental death benefit rider.
- Check premium payment
Ensure that the premium amount is affordable for you. If you are having a problem with the premium, you may want to look for a cheaper policy or decrease the coverage. Keep in mind that failure to make premium payments on time can result in a policy lapse.
- Check the policy settlement ratio
The policy settlement ratio is the number of policies satisfied by the insurer divided by the number of claims received. A greater ratio indicates that the insurer is more dependable, and your claim has a better probability of being settled.
A life insurance coverage serves as a financial safety net during your ever-changing journey through life. Regularly reviewing and updating your policy will help you remain financially prepared for life’s risks. Remember that the correct life insurance coverage is more than simply protection; it’s about living with peace of mind now and ensuring a solid future for your loved ones.
