When it comes to life insurance products, there are a plethora of options in the market, each with its utility. However, to look at how life insurance can come in handy, we must first understand the various shapes and sizes in which a life insurance policy comes.
The fundamental reason for getting a Life insurance plan is to protect a person’s dependents in case of the insured’s sudden death. The sudden death of the breadwinner of the family due to any reason has the danger of leaving the family in financial distress. Life insurance policies protect families from such events.
Life insurance products can be classified into four main categories:
- TERM INSURANCE
A term insurance plan is a life insurance plan which insures a person’s life for a specific number of years against an annual premium. Term insurance plans are pure insurance products that have no maturity benefits.
- ULIPs
Unit-linked insurance plans are dual benefit insurance products, having the element of life insurance and an investment vehicle. The investments are made into market-linked mutual funds, and the returns vary per your risk appetite.
- WHOLE LIFE INSURANCE
These are similar to a term plan, except that the life cover is for the policyholder’s entire lifespan, and maturity benefits are involved.
- ENDOWMENT PLANS
Endowment plans are life insurance cum savings products where you get a maturity benefit at the end of the policy term. This benefit is a fixed sum and, based on the type of endowment plan, can have profits or be just a pre-decided sum assured.
So, the utility varies depending on which type of life insurance product you purchase. Let us look at some of how it can come in handy.
- A Savings Scheme
The first thing is to see it as a forced savings scheme if you have an endowment or money-back plan. In such cases, the premiums serve as savings with the added benefit of life protection. This kind of enforced saving is valuable and can create a future corpus that comes in handy.
- An Investment Plan
The second thing is its utility as an investment plan if you have a ULIP. ULIPs act as investment vehicles by letting you invest a portion of your premium into mutual funds and are great tools for wealth accumulation that also provide robust life cover!
- Family Needs
The other planning that can go into purchasing a life insurance plan is the child’s marriage. Planning for a policy to mature at the approximate time will ensure that the funds are available and no strain is put on savings or any other aspect of the family’s finances. A life insurance plan like a money-back scheme or a short-term ULIP can benefit such cases. The maturity amount includes the total premium paid along with interest and bonuses. Therefore, the amount is a lump sum that can certainly defray marriage expenses.
- Protects from Sudden Financial Crisis
A life insurance plan acts as a hedge against the sudden death of the insured. It protects the family from sudden financial distress, and at the same time, it builds up a fund that will grow and yield a certain amount of return. This amount will be available at the time of maturity. Sometimes it is a good idea to have a lump sum of money come in at specific periods. These funds can then be used for whatever needs to be done at that time. An additional income is always welcome, which will safeguard against many situations.
- Emergency Fund Requirements
During its tenure, a life insurance policy can also be used for emergency fund requirements. A loan can be taken against a valid policy during its active tenure. It is easy to get, can be used to overcome a sudden requirement of funds, and can be repaid in easy instalments. There is no need for bank loans or loans of any kind.
It is best to see what premium is affordable. Since the premium must be paid over several years, this is of critical importance. This prevents financial problems later. It is easy to do this online using the term plan calculator. This free term plan calculator calculates how much premium you need to pay for a particular sum assured. Once you zero in on the sum assured and the term, the calculator will tell you how much the premium amounts are. The calculator will also use several other details, such as age and whether you are a smoker or non-smoker, to arrive at the premium amount. But you will know what the premium is. If it seems too much, tweak the term or the sum assured to arrive at the precise amount you wish to pay. Once you have this, then you are ready to go ahead. But it’s better to be conservative in your premium calculation. A default in premium payment might mean a lapsed policy. Therefore, calculate the premium carefully. It is a long-term investment, after all.
Remember that the premiums attract tax benefits under section 80C of the Income Tax Act, 1961. Therefore, your premiums will save you income tax while acting as a saving. Therefore, a life insurance policy is another way to save on income tax.
A life insurance plan is, therefore, something that has several advantages. It insures the person’s life and acts as a savings vehicle for the money. It also affords loans when there is a sudden need for funds. Best of all, it has the benefit of Income Tax benefits. It has several advantages and is an essential instrument for financial protection.
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