When you look at the investment portfolio of most people, you will always find a life insurance policy. But why is that? A life insurance policy is a financial product that is designed to offer financial protection against the uncertainties of life. So, while one cannot predict the lemons life will throw at them, one knows with certainty that there will be lemons along the way. Hence, buying a life insurance policy is a smart move. If you are yet to be convinced, let’s take a look at some of the benefits of life insurance.
- Death benefit
When you buy a life insurance policy, it comes with a death benefit. This essentially means that in the event of the policyholder’s demise, their nominees will receive the sum assured. This is one of the primary benefits of life insurance as it provides financial security to your loved ones. The life insurance policy money comes in handy to meet financial expenses, meet loan EMI (Equated Monthly Instalment) obligations, maintain the same standard of living, and more. Hence, the most fundamental benefit of life insurance is to offer financial protection to your family in case the worst happens.
- Maturity benefit
Some life insurance policies come with a maturity benefit. What this means is that if the policyholder ends up outliving the policy term, they will receive the sum assured. This is one of the most helpful benefits of life insurance because it helps your policy also act as a savings instrument. At the end of the policy term, you can use that money to meet certain financial goals.
- Investment returns
Certain life insurance policies such as Unit-Linked Insurance Plans (ULIPs) offer you the opportunity to invest and earn returns. ULIPs provide the dual benefits of life insurance and an investment product. In a ULIP plan, a part of the premium you pay is used towards the life insurance plan while the remaining is invested in products such as equity funds, debt funds, and balanced funds. This means that not only do you get the financial security of a life insurance policy but you also get to generate wealth through strategic investments at the same time.
- Tax deductions
Another benefit of life insurance is tax deductions. The premium paid on life insurance policies is tax deductible up to Rs 1.5 lakh under section 80C of the Income Tax Act, 1961. There are certain conditions to avail these deductions, so make sure to speak with your accountant or financial advisor to understand them. For instance, for life insurance policies issued before 31st March 2012, the maximum premium deduction that can be claimed is up to 20% of the sum assured. This limit has been changed from 20% to 10% for life insurance policies issued on or after 1st April, 2012. Additionally, this deduction is only available if you are following the old tax regime. Hence, make sure to see what tax benefits you can claim and to what extent before you buy a life insurance policy.
- Insurance riders
Life insurance policies allow you to add riders to your policy to make it more comprehensive. These riders cover various other scenarios and essentially increase the scope of coverage. For instance, there are riders such as personal accident, critical illness, family income benefit, return of premium, and more. These riders allow you to customise your life insurance policy according to your and your family’s needs so that you can make the most out of the benefits of life insurance.
As you can tell by now, having a life insurance policy in place is crucial. In fact, the earlier you get life insurance, the lower will be the value of the premium you will have to pay. You can use an online life insurance premium calculator to check out what your policy will cost you. The best part about using a life insurance premium calculator is that you can add various riders and see how they affect your premium, and also get an instant quote from the insurer as well. However, it’s essential to remember that the life insurance policy with the lowest premium is not always the best option. Make sure to look at all the benefits, inclusions, and exclusions, before you make your decision.