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Benefits of Life Insurance
Life insurance offers multiple benefits but the primary benefit is to provide financial security to you and your family in case of any eventualities.
Before investing in a policy, you may wonder what the benefits of life insurance are and why it is so important. One of the most significant benefits of life insurance is the financial security it offers to the beneficiaries in case of the policyholder's untimely death. The death benefit from life insurance can help pay off outstanding debts and provide income replacement for the family. ...Read More
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TERM INSURANCE PLANS BUYING GUIDE
Life Insurance Benefits in India 2024
Table of Content
Why is Life Insurance Essential for Your Financial Plan?
Financial planning is necessary to manage different financial goals meticulously. Life insurance can contribute significantly to your financial planning. To ensure that you have the right coverage for your needs, using a life insurance calculator can help you determine the appropriate amount of coverage based on your financial obligations. The various benefits of life insurance in financial planning are given below:
Financial Security
Financial security is one of the key benefits of life insurance. The death benefits given to the beneficiary in case of your untimely death will be a financial safety net for your family.Ensure Your Child's Future Security
Funding children’s education is of primary importance to parents. One of the life insurance benefits is helping you finance your child’s education by investing in the best child insurance plan.Avoid The Burden of Debt
Debt builds up when you take out loans to fulfil financial goals at different milestones in life. If anything untoward happens, your family will experience a financial crisis. Avoiding this burden of debt on your family is one of the notable benefits of life insurance.Retirement Planning
If your job does not have a pension provision, retirement planning becomes a must. Investing in annuity plans under life insurance that provide a regular income is one of the advantages of life insurance.Tax Benefits
Financial security and peace of mind are not the only benefits of life insurance. The premiums you pay towards the policy are eligible for tax deduction under Section 80C,which will reduce your tax burden.
What are the Benefits of Life Insurance?
The benefits of life insurance are manifold. Some of them are:
1. Financial Security
Financial security is one of the most significant advantages of life insurance. If anything unexpected happens, you will rest assured that your family will have financial stability and will not have to compromise on their present lifestyle. The death benefits of a life insurance policy will help your family pay off loans, manage education and medical expenses, etc. This will substantially reduce the financial burden on your family.
2. Wealth Creation
Unit-linked plans under life insurance are one of the best investment options for wealth creation. A part of the premium payments will be invested in equity funds, and the insurance company will pay policy dividends every year based on the income generated through investments. The rest of the premiums paid will be utilised for life coverage. It is a combination of insurance and investment that helps both in wealth preservation, as well as, providing financial security to your family. These benefits of life insurance are a compelling reason to invest in an insurance policy.
3. Tax Savings
Reducing the tax burden is one of the benefits of life insurance that cannot be ignored. The premiums paid towards insurance policies are eligible for tax benefits under Section 80C. The insurance policy payouts are tax-free under Section 10 (10D).
4. Death Benefit
The death benefit is the tax-free payout to the nominee or beneficiary assigned while purchasing the policy in case of the policyholder's death during the policy term. This will help your family to manage financial commitments like repaying outstanding debts, children’s education, monthly expenses, etc., without any stress. This is one of the appealing benefits of life insurance policy that provides financial stability to your loved ones when you are not there to take care of them.
5. Maturity Benefits
The sum assured, and the accrued bonuses will be paid out if you survive the policy term, which is the maturity benefit. This is one of the life insurance benefits you will miss if you do not invest in a policy plan. The payout can be a huge corpus for fulfilling your future goals or to lead your retired life peacefully.
6. Riders
Riders are add-ons to your existing policy for an additional premium. You can customise your requirements by opting for various riders, such as accidental death rider, waiver of premium rider, accidental disability rider, critical illness rider, etc. Opting for riders is an economical way of deriving additional life insurance benefits instead of purchasing separate policies for each benefit at hefty premiums.
7. Coverage for Chronic and Terminal Illnesses
Coverage for chronic and terminal illnesses is among the life insurance benefits that help the policyholder fund the expenses required for treating the disease. If you as a policyholder, are diagnosed with a terminal/chronic illness during the policy term, a part of the base sum assured will be provided for better treatment and to fund hospital expenses. The payout amount depends on the terms and conditions of the policy.
Factors to Consider While Buying Life Insurance
There are several types of life insurance and while contemplating ‘what are the benefits of life insurance,’ you should also look for the following to derive the optimal benefits of life insurance policy while purchasing a policy:
Policy Coverage
Family security could be your primary concern while buying an insurance policy. If the policy is also part of your financial planning, the coverage should align with your present and future financial requirements. Always factor in your present and future financial commitments to arrive at the desired coverage. Inadequate coverage can make your family financially distressed and will not serve the purpose of being an income replacement.Premium Payment Options
Choose a policy with flexible payment options. The options available will be monthly, quarterly, half-yearly, and yearly. A single premium payment option covering the entire policy term is also available for individuals who can afford to invest a lump sum.Period of Policy
The choice of policy term depends on the number of years your family will depend on you. The best way to choose the policy tenure is to subtract your current age from your retirement age or when you plan to fulfil a goal. Remember that the premium payable will depend on your chosen tenure. A longer tenure will have a lower premium.Terms and Conditions
For making an informed decision, browsing through the terms and conditions of the policy is important. You will understand the benefits of life insurance better and decide whether the policy is suitable for you only by reading the fine print. If you do not want your claim to be rejected for a reason that comes as a surprise to you, you should be aware of the terms and conditions before purchasing a life insurance policy.Claim Settlement Process
Claim settlement ratio or CSR is an indicator of how seamless the claim settlement process of an insurance company is. IRDA releases an annual report with the CSR of all Indian insurance companies. The CSR also indicates the percentage of claims settled by an insurance company out of the claims received in a year. Consider purchasing a life insurance policy from a company with over 95% CSR.Additional Riders
Riders provide additional risk coverage and benefits for an additional premium. You should go through the available riders and choose the ones that are suitable for you. It could be an accidental death/disability rider, terminal/critical illness rider, waiver of premium rider, etc. The coverage under the base plan will continue even after claiming the benefit under critical illness insurance.
Who will Require a Life Insurance Policy?
The need for a life insurance policy depends on the economic contribution of a person to the family. The following are the ones who generally require a life insurance policy:
Breadwinner of the Family
If the financial well-being of your family solely rests on your income, then you need a life insurance policy to support your family financially as well as provide an income replacement in case of your untimely demise. The death benefits can help repay outstanding debts, manage the education expenses of children, monthly household expenses, etc.Parents
Parents with growing children have a great responsibility. They have to fund their children’s education, their day-to-day expenses, and any other related expenses. Investment in a life insurance policy can secure their children’s future while providing financial stability in case something untoward happens to them.Married Couples
Married couples need a life insurance policy to provide financial security to the surviving spouse. Even if the surviving partner is financially independent, financial commitments that they would have incurred together can be overwhelming when one income is lost.Individuals with Dependants
Single individuals with dependents need a life insurance policy to provide financial security to their dependents in case of their untimely demise.Individuals Who Need Regular Income after Retirement
Life Insurance for NRI is also crucial, as it provides financial protection for their families back home while they work abroad. Individuals whose jobs do not provide for pension after retirement need a plan that provides financial security during their golden years by way of a regular income.
What Are the Things Life Insurance Covers?
There are various plans under life insurance with a variety of coverage options to suit the diverse needs of their clients:
Term Insurance
Term insurance plans offer pure financial cover for your financial dependents in case you meet with an eventuality.Unit Linked Insurance Plans (ULIPs)
A Unit-Linked Insurance Plan (ULIPs) is a type of life insurance that offers the added advantage of investment plans along with life cover.Whole Life Insurance
One of the significant benefits under whole life insurance is coverage for the entire lifetime of the insured.Endowment Policy
Endowment Policy offers both death benefits as well as maturity benefits. Under the death benefit, the beneficiary or the nominee will get a lump sum payout for the untimely death of the policyholder. If you survive the policy term, you will get the premiums paid along with bonuses on maturity of the policy under the maturity benefit.Money-back Policy
With money back policy you get regular cash flows along with life cover under this plan. Periodical payouts will be made during the policy term as survivor benefits along with maturity benefits on surviving the term.Child Insurance Plans
Child plans are a financial tool to secure your child’s future and also provide life cover.Retirement Plans
Retirement plans are financial policies that enable you to plan for the future, even when you no longer have a steady income.
Conclusion
Investing in a life insurance policy should be a priority if financial security for your family is your primary concern. Understanding the benefits of life insurance before you purchase a plan, including knowing what is a nominee in insurance and their role, will ensure a secure financial future for your loved ones. Choose a policy that aligns with your financial goals and derive optimal benefit from the investment made.
FAQs on Benefits of Life Insurance
Q. What is the benefit of life insurance?
The benefits of life insurance are:
- Financial security
- Income replacement
- Estate Planning
- Asset protection
- Tax Saving
- Death Benefit
Q. What is the importance of life insurance?
Life insurance is a tool that provides financial security and stability to the family in case of the untimely death of the policyholder. It will provide financial independence to the policyholder’s family and they can continue to enjoy the existing lifestyle.
Q. What is an advantage and a disadvantage of life insurance?
Financial security is an advantage, and high premiums are a disadvantage of life insurance.
Q. Can I buy riders without a base policy?
No. You cannot buy riders without a base policy.
Q. How long does life insurance last?
The duration of the life insurance policy can last for various durations and the whole life plan can last for the lifetime of the policyholder.
Q. What happens if I do not pay the life insurance premium on time?
The policy will lapse if the premium is not paid on time. However, the policy can be revived by paying the premium within the grace period provided.
Q. How many riders can I add to my life insurance policy?
You can add any number of riders to your life insurance policy as long as they are available under the base policy.
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Francis Rodrigues
Francis Rodrigues has a decade long experience in the insurance sector, and as SVP, E-Commerce and Digital Marketing, HDFC Life, manages the online sales channel, as well as digital and performance marketing. He has had hands-on experience in setting up sales channels and functional teams from scratch over a career spanning 2 decades.
Written By:
Vishal Subharwal
Vishal Subharwal heads the Strategy, Marketing, E-Commerce, Digital Business & Sustainability initiatives at HDFC Life. He is responsible for crafting and ensuring successful implementation of the overall organisation strategy.
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*Tax benefits are subject to conditions under Sections 80C, & Section 10(10D) and other provisions of the Income Tax Act, 1961. Tax Laws are subject to change from time to time.
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