Introduction to Life Insurance:
A life insurance policy is a contract between an insurance policyholder and an insurance provider in which the provider agrees to pay the policyholder a certain quantity of money upon the death of the policyholder or after a specified length of time, in exchange for a premium.
Life insurance companies provide life cover in exchange for premium payments over a specified time period. In the event of your untimely demise, the lump sum payment from our Life Cover will ensure financial stability for your loved ones.
At the end of the term of some policies, you will receive a payment known as the Maturity Benefit.
Types of Insurance:
There is 2 major type of Insurance policies.
Which includes, Health, Motor Vehicle other assets, etc. And then we have life insurance.
Under life, we have term life & whole life insurance, ULIP, pension plans, etc. Life Insurance is further divided into (A) Pure Protection Insurance and (B) Protection & Savings.
Life insurance’s major objective is to provide you the coverage in the case of an unfortunate death. So, it’s a long-term commitment wherein, upon the insured individual’s death, the nominee will get the lump sum amount.
But, the question we need to ask here is… Is life insurance the right investment for all of us?
How does Life Insurance work?
As said earlier, Basically, there are 2 types of life insurance,
Term life insurance
This provides life cover for a specific period. You can secure your family’s financial future with a term life insurance plan by paying a low premium. If anything happens to you within the policy period, your loved ones will receive the agreed Sum Assured as per the payout option chosen.
Term life insurance provides a death benefit at the lowest possible cost. The insurance, however, has no financial value and will lapse at the end of the term.
Whole Life Insurance
Also known as ‘traditional’ life insurance plans, which provide coverage for the entire life of the insured individual, as opposed to any other life insurance instrument that offers coverage for a specific number of years.
Tax Benefits Under Life Insurance:
Amount paid toward the premium for different types of life insurance plans is tax-deductible
1. Under Section 80C of the income tax act, the premium payable towards all types of life insurance plans is tax-deductible up to Rs 1.5 lakh.
2. Under Section 80D of the income tax act, the premium payable towards all types of health insurance plans is tax-deductible, subject to a maximum of Rs 25,000 for self, spouse, and children and an additional 25,000 for parents aged below 60 years (the tax savings can go up to Rs 50,000 for senior citizens individual and 50000 if parents are senior citizens. So, Total tax-deduction can go up to 1Lakh)
Is life Insurance for Everyone?
There are two aspects to this question.
First and foremost, Should we all have life insurance? Yes, because, it will help our beloved family members to be financially secure upon the happening of an unfortunate event.
In that sense, we want our people to be financially secure when we are no longer there to look after them. So, it’s kind of our responsibility of us that’s being taken care of by the life insurance scheme. The money from your life insurance can be used for your kid’s education, marriage, new house whatever be it.
On the other hand. Is life insurance a better choice? I mean, if we subscribe to a life insurance scheme, we need to pay a premium for almost forever! Instead of subscribing to such schemes the benefit of which is only available upon the death of the insured. Why not invest the same amount that you normally pay as an insurance premium into SIP?
Why not Invest instead of Insure?
Now, don’t get me wrong. We must have health insurance for sure. Health is something that’s much more uncertain and immediate. But, life isn’t so.
Each and every one of us may get sick at times. But, that may not necessarily lead to death. So, instead of life insurance, have health insurance.
I would suggest you invest the premium amount into your SIP plans that are mainly Investing in assets such as Equity which is much more lucrative and your payoff after a certain period is much higher than any insurance could ever be.
Who must Subscribe to Life Insurance?
Life Insurance is for those who’s life must be insured because of either of the reasons;
Sole Bread Winner
They are the sole provider of the family, and the sudden death of this member will have a drastic financial impact on each and everyone in the family.
For example, Mr.X works as a teacher. He has 2 daughters, both studying, and a homemaker wife. Suppose Mr.X dies of Covid. His entire family, who were financially supported until now. And upon his death, they have nowhere to go!
So, you get the point right? Unfortunately, because of covid, we get to see more such instances. So, insuring the life of the breadwinner is extremely important if there are no other ways with which the family of the dependent can survive.
Hazardous Working Condition
The second scenario where life insurance is extremely important is when the person of interest is working in a hazardous working conditions. For example, Mr.Y works in a coal mine. Mines of any kind are dangerous and anything can happen at any time. So, anyone working in such conditions where the life of the individual could be at harm. They must subscribe to life insurance.
Buying life insurance is a prudent move. Life insurance is a wise investment for everyone who has financial responsibility for others.
A life insurance policy provides a safety net for your loved ones in the event of your death, allowing them to continue paying for essentials like a mortgage, vehicle payments, tuition, medical treatment, and more.
Purchasing a life insurance policy is a cheap way to give peace of mind to your loved ones.
But, If you are someone working in an environment that’s not considered hazardous and if your family members are not completely dependent on you financially. Then do not subscribe to life insurance.
Your money is well utilized in other investment tools that could yield higher returns over time.
For More Information, Check this Video:
Disclaimer: All the information on this website is published in good faith and for general information purposes only.