4 Lesser-Known Aspects of Life Insurance Beyond Tax-Savings

Many people think that life insurance investments are all about tax savings. However, this is nothing more than a myth. Indeed, tax benefits are essential, but that is not the be-all and end-all of life insurance. You need to understand the overall benefits and considerations of the same, with a view towards financially safeguarding your family’s future while also choosing options for investments and future goals if they are available.

In this blog we will know more about life insurance, why it is important, and its various benefits that are often ignored in favor of saving taxes.

What is Life Insurance?

Life Insurance is a contract between an insurance policy holder and an insurance company, where the latter agrees to pay a certain amount of money to the beneficiary of the life insurance policy upon the policyholder's death or after a predetermined period.

In exchange for your premium payments throughout the course of the policy term, the life insurance company offers you a pre-specified life coverage. Life insurance safeguards the future of those you love by providing a lump sum payment, sometimes known as a death benefit, in the case of an untimely death. Upon the expiration of the policy term, certain life insurance policies offer you maturity benefits as well.

Importance of Life Insurance Policies

The importance of life insurance goes way beyond just saving taxes. Realizing the same is essential, considering how an Economic Survey by the Ministry of Finance highlighted how just 3 out of 100 people had life insurance in India. There are various kinds of life insurance products that have varying benefits. Pure term insurance coverage offers fixed payouts to nominees in the event of the demise of policyholders within the policy period. There are term plans with a return of premium feature, where the premiums paid are returned at maturity in case the policyholder survives the duration of the policy.

At the same time, there are low-risk investment-oriented insurance plans like endowment policies. There are other child plans and retirement plans with moderate to medium risk levels, while ULIPs (Unit-Linked Insurance Plans) also offer both insurance and investments in market-linked instruments for the chance of earning higher returns. On that note, here’s taking a closer look at some of the most basic benefits offered by life insurance that you should know more about.

Some Advantages of Life Insurance that We Ignore in Favor of Saving Taxes

Financial Protection:

Giving your family members financial stability is one of the main advantages of having a life insurance policy. These policies come with fixed death benefits/lump sum assured amounts which are paid to the nominees of policyholders in the event of their unfortunate demise

within the policy period. This guarantees that your family members can maintain financial stability even in your absence.

Saving for Children’s Education:

Most Indian parents pay for their kids' schooling and college expenses. These expenses can go up to several lakhs every year. Therefore, one of their top priorities should be planning to save this amount from an early career/life stage. You will find dedicated life insurance child plans that will help you meet these requirements, while ensuring adequate financial support in case of any unfortunate event within the policy tenure.

Financial Security for Serious Illnesses or Medical Problems:

If you get diagnosed with a serious critical disease, there's a good chance you won't be able to work while you're receiving treatment or recovering from the same. But even if you get sick, your family will still need money. Life insurance plans with suitable riders for terminal/critical illnesses may help you arrange funds for such scenarios in case they unexpectedly occur.

Retirement Planning:

Retirement is meant to be this lovely period when life is calm, and you are not burdened by responsibilities from your job. If you receive a pension or a monthly income, it can be all those things and much more. With many individuals working for private companies, pension benefits are mostly not available after they retire. For this reason, retirement stops being something to look forward to and starts to become a worry.

Fortunately, life insurance offers retirement options that may help you and your spouse benefit from a lifetime pension or annuity. You can start saving for retirement with a dedicated retirement plan (after taking your post-retirement needs into account) and build a corpus through regular contributions. This will then be utilized to purchase a fixed pension plan that safeguards you from inflation.

Conclusion

To summarize, the significance of life insurance is not confined to tax savings, considering its immense financial benefits for your beneficiaries. Clearly, while the role of tax benefits is important, it is a single item on a comprehensive list of advantages. Ultimately, life insurance assists in creating financial stability, guaranteeing children’s education, paying for various medical emergencies, and even ensuring financial security after retirement. Therefore, it is imperative to perceive life insurance as a product that influences financial stability and protection throughout your lifetime.

 

Aastha Mestry - Portfolio Manager 

An Author and a Full-Time Portfolio Manager, Aastha has 6 years of experience working in the Insurance Industry with businesses globally. With a profound interest in traveling, Aastha also loves to blog in her free time.