Importance of life insurance policy | 10 reasons to buy life insurance

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Importance of life insurance policy

To pay off debts

Importance of life insurance policy: Most people, during their early professional life, end up taking loans to fulfill various needs like purchasing a house or a car. Some end up taking a personal loan to finance their child’s wedding, or even repay multiple debts. However, in case you happen to pass away suddenly, the burden of all these loans and debts falls directly on your dependent family members.

Even if your spouse is employed, the financial burden of paying off these loans falls directly on them. With a life insurance policy, this is one worry less to be worried about as the sum assured from the life insurance policy can help the family take care of such liabilities, without compromising their needs.

To take care of your family’s needs

Importance of life insurance policy: The primary purpose of life insurance is helping your loved ones take care of their needs, especially at a time when you may no longer be around to provide for them. A dependent spouse, children, or aged parents will continue to be dependent on your income, and leftover savings even after your demise.

However, with the loss of regular income, it can be difficult to take care of all expenses, and families often have to compromise on their lifestyle to ensure that essential needs can be taken care of. That’s where life insurance steps in, to help the family take care of their needs like children’s education, as income replacement, to create further savings or investments, and to provide much needed financial stability to the family members.

Insurance for your business

The purpose of life insurance is not just to safeguard the financial future of your loved ones, but also your business concerns. There are life insurance policies specially designed for business owners where the surviving business partner to acquire their deceased partner’s share of the enterprise, while the benefit sum assured pay-out is provided to the deceased’s nominee.

To take care of short & long-term future requirements

Depending on the policy you have chosen, and the payout option, the right life insurance policy can be crucial in helping your loved ones take care of their short term and long term needs. Short term needs may include immediate expenses such as loans, or liabilities, which need to be repaid quickly. Over the longer term, the family would require funds to take care of the children’s education, to invest, or save for the future, to take care of recurring household expenses, etc.

Certain insurance policies also come with built-in investment components that allow for investments in a variety of funds, as chosen by the policyholder. Some policies also have combination payouts where a part of the sum assured is provided immediately after death, a lump sum. The remainder is provided over a specified future period in fixed installments and acts as an income replacement.

For mental peace

Having mental peace is very important for leading a worry-free life. With life insurance, that is exactly what you get. You no longer have to worry about what happens to your family’s financial well-being if you are not around. Given that tragedy can strike at any time, having a life insurance policy will at least give you peace of mind that your loved ones are provided for.

To save on tax

Besides providing protection, the other major reason people buy insurance is to save on tax. As per the current provisions of Section 80C of the Income Tax Act, 1961, policyholders can avail tax benefits of up to Rs.1.5 lakh on life insurance premiums. Also, the proceeds received under the death/maturity benefit are also tax-free under Section 10 (D) of the Income Tax Act, 1961.

These are just some of the many reasons that make life insurance an absolute necessity, especially for someone who is the sole earning member in their household. If your family’s future is dear to you, then you must not delay purchasing a life insurance policy, after due consideration of your needs.

10 reasons to buy life insurance

1. LOOKING AFTER YOUR LOVED ONES EVEN AFTER YOU’RE GONE: 

Importance of life insurance policy: This is the most important aspect of life insurance that one needs to factor in. Your family is dependent on you even after you’re gone and you certainly don’t want to let them down. Whether it’s for replacing lost income, paying for your child’s education or making sure your spouse gets the much-needed financial security, life insurance could save the day for your surviving dependents.

2. DEALING WITH DEBT: 

Importance of life insurance policy: You don’t want your family to deal with financial liabilities during a crisis. Any outstanding debt-a home loan, auto loan, personal loan, or a loan on credit cards will be taken care of if you happen to buy the right life insurance policy.

3. HELP ACHIEVE LONG-TERM GOALS: 

Importance of life insurance policy: Since it is an instrument that keeps you invested in the long term, it would help you achieve your long-term goals such as buying a home or planning your retirement. It also provides you with diverse investment options that come along with different types of policies.

Some policies are tied to certain investment products that pay dividends based on their performance. If you are opting for an investment-linked policy, be sure to read the fine print to be fully aware of the potential risks and returns.

4. LIFE INSURANCE SUPPLEMENTS YOUR RETIREMENT GOALS: 

Importance of life insurance policy: Who wouldn’t like their retirement savings to last until they do? With a life insurance plan, you can ensure you have a regular stream of income every month. Putting money in an annuity is like a pension plan- put in some money regularly in a life insurance product and enjoy a steady income every month even after retirement.

5. BUYING INSURANCE IS CHEAPER WHEN YOU’RE YOUNGER: 

Importance of life insurance policy: Not every millennial needs a life insurance policy. If you haven’t created an emergency fund or you’re still living off your parents’ money, insurance shouldn’t be a priority.

However, if you do have dependents or you have co-signed a loan with your parents (or any other member of your family or friend), whether it be a student loan or a home loan, you need to start considering buying a life insurance policy. Besides, coverage costs are much lower when you’re single. Insurance agents may try to sell you a policy that you might not need.

Therefore, do your due diligence or approach a financial planner to determine how much insurance you need considering the other assets you may own. Even if you’re single, there may be other dependents and you need to ensure they’re taken care of. Pradeep Pandey, chief marketing officer, Future Generali Life Insurance, says, “The earlier the better. For instance, single people provide financial support for aging parents or a sibling with special needs. Insurability is another reason to consider life insurance when you’re single. If you’re young, healthy and have a good family health history, your insurability is at its peak, and you can get the best rates on your life insurance policy.”

6. YOUR BUSINESS IS ALSO TAKEN CARE OF: 

Next on Importance of life insurance policy: Life insurance isn’t only for yourself and your family. Some insurance policies also take care of your business. If you own a business, then your business partner can purchase your portion of the business without hassle. Your business partner( s) will enter a buy-sell agreement and the payout would go to the deceased partner’s nominees, but without giving them a stake in the company. There are two types of life insurance policies-a term insurance policy and a life insurance policy.

While we are all aware of the death benefits these insurance policies provide, we know little about the various options they layout that could help strengthen your financial position.

A term insurance provides protection for a specified period of time (10, 20 or 30 years) and pays out the benefits only if you die during the term. The policy will expire and coverage will end if you outlive your policy. An investment-cum-protection plan, on the other hand, offers you a lump sum amount on the completion of the term of the policy. These plans also offer you protection but the cover is usually not as high as offered with term plans.

7. TAX-SAVING PURPOSES: 

Next on Importance of life insurance policy: You could save taxes with insurance policies irrespective of what plan you buy. The premium you pay on an insurance policy is eligible for a maximum tax benefit of Rs 1.5 lakh under Section 80C and for tax-free proceeds on death/maturity under Section 10 (D) of the Income Tax Act, 1961.

8. A TOOL FOR FORCED SAVINGS: 

Next on Importance of life insurance policy: If you choose a traditional or unit-linked policy, you pay a premium each month, which is higher than what it costs to insure you. This bit of extra money is invested and it accrues cash value. This cash can then be borrowed against the policy or you can choose to sell it or draw income from it.

9. YOU MAY NOT BE QUALIFIED FOR IT LATER: 

Next on Importance of life insurance policy: Life insurance policies run on uncertainties. You may be healthy now and paying a premium for life insurance may seem to be an added financial burden, but if you suddenly fall ill, you may not be allowed to but a life insurance policy. Therefore, it is imperative to buy one early on in your life because it remains in force if your health deteriorates later on. Insurance companies allow you to attach certain riders or benefits to your existing or new policy.

These riders enhance the quality of your insurance. The accelerated death benefit rider, for instance, allows the policy owner to avail all or a part of the policy’s death benefit if he or she has less time to live due to a critical illness, or wants to use the money for medical treatment or related expenses.

10. PEACE OF MIND: 

Next on Importance of life insurance policy: Death is unavoidable. In the face of tragedy, the least you can do for your family is to secure their financial future. Even if it is a small policy, you know that you’ve done all you can to help them tide over difficult times.

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