Life is unpredictable, and disaster can strike at any time. Therefore, purchasing life insurance is an important step towards ensuring the financial security of your loved ones. It will remain by their side even if you are no longer there.
What is Life Insurance?
Life insurance is essentially a contract between the insurance company and the person buying the policy (the insured) that promises a pre-determined amount in the event of the death of the insured. The insured has to pay a fixed premium to the insurer either on a monthly/ quarterly/ yearly basis, as agreed by both parties. The sum assured is paid to the nominee stated in the contract (usually a family member) if the insured dies within the policy period.
Therefore, having a life insurance policy will empower your family to not only continue their current lifestyle but also attain all the financial goals and milestones you set together, even in your absence.
As per the statistics collected by the Insurance Regulatory and Development Authority of India (IRDAI), in the Financial Year (FY) 2015-16 the life insurance sector recorded a premium income of Rs. 1.38 trillion showing a 22.5% growth rate.
This shows a growing awareness about the benefits of purchasing life insurance and is definitely a positive change. However, Indians are still hugely underinsured.
Why is it important to have Life Insurance in India?
The Indian socio-economic conditions warrant that each of us must plan to safeguard our health and finances. With the high rates of death due to road accidents and illnesses like cancer in India, this becomes even more necessary. is further driving up the costs of essentials like healthcare, education, and real estate.
Unlike developed nations that have comprehensive social security, education, and healthcare infrastructure, Indians most often settle these expenses from their own pockets. To combat this and provide some financial security through starting bank accounts and providing insurance, Prime Minister Narendra Modi even launched the Pradhan Mantri Jan Dhan Yojana in 2014.
Therefore, even the government seems to point out the importance of availing life insurance. A life insurance policy would be a wise backup financial plan in case you are no longer there to earn for your family.
What are the Reasons to Buy Life Insurance
The following are the top three reasons to purchase a life insurance policy:
1. Financial Cover for Your Loved Ones
2. Investment Component
3. Tax Benefits
Let’s see, how a life insurance plan can provide these benefits to your family and help ease their financial burden in your absence.
Case Study 1: ‘Financial Cover for Your Loved Ones’ Let’s understand this with Mrs. Roop Singh example
Mrs. Singh’s husband, Mr. Rajveer Singh used to run a small shop. Unfortunately, he passed away in a road accident and Mrs. Singh was left alone to look after her two sons (aged eight and four). Having been a housewife until then did not help matters either. She had no savings, and the family’s only source of income was gone.
Fortunately, her husband had planned for such an eventuality and had availed a term plan offering a lump sum + monthly income. It came as such a relief to Mrs. Singh, when the insurance company paid her the money just a few days after her husband’s death. It helped her pay off a loan she and her husband had availed to build the house they were living in.
The monthly income from the life insurance policy meanwhile, helped her pay her kids’ school fees and manage the household expenses, at least until she decided to reopen the shop. Later she started investing the money from the monthly income into another insurance policy, to build a corpus for her boys’ higher education.
Thus, in this case, the policy provided a much-needed financial cover to the policyholder’s family in their time of grief. This allowed them to maintain their lifestyle, in spite of the death of their main earning member.
Case Study 2: ‘Investment Component’. Let’s understand this with Mr. Dhruv Deshmukh’s example
Dhruv, the only son of late bank manager Mr. Gautam Deshmukh, was lucky that his father was a meticulous financial planner. Mr. Deshmukh had purchased a Unit Linked Insurance Plan (ULIP), a type of life insurance policy that allowed him to invest a major part of the premium across investment options.
This meant that although he was longer be around to take care of them, (having passed away in an accident 4 years ago, when Dhruv was just 18), he had left behind a sizable amount as savings (along with the life cover) that helped Dhruv with his college expenses.
Moreover, since Mrs. Deshmukh hadn’t found a job after her husband’s last transfer, they had been left without a source of income, when he passed. This was also the time Dhruv was set to join medical college.
But since Mr. Deshmukh had planned it out so well, they didn’t really feel the financial pinches at all. The benefits from the plan helped Dhruv pay his first college fees to join, and continue to do so even now when he is doing his internship.
Thus, in this case, the investment component of the policy allowed the insured’s family to achieve a major financial goal they had – their son’s education.
Case Study 3: ‘Tax Benefits’ Let’s understand this with Mr. Vikram Sharma’s example.
Mr. Vikram Sharma was nearing retirement. But, he wasn’t worried about how he would survive as he had saved up quite a retirement corpus, through his intelligent tax planning.
Over the years he had been paying his life insurance premiums every year diligently and availed the tax exemption under Section 80C of the Income Tax Act, 1961. Here, life insurance premiums up to Rs. 1,50,000 per annum are exempt from tax. Thus, he saved quite a bit of money through tax exemptions. An additional benefit of buying a life insurance policy is that the claim amount or the bonus amount is also exempt under Section 10 (10D) of the Income Tax Act, 1961.
He was also glad for the peace of mind that his life insurance provided. He knew he could rest assured that his loved ones would be taken care of even if he wasn’t around anymore.
Thus, in this case, the tax benefits from the life insurance policy helped the policyholder save money and build a retirement corpus.
There are many life insurance companies in India, like Max Life Insurance, that offer various life insurance plans. So, start planning today and research thoroughly to choose the best life insurance policy for you.