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Importance of Life Insurance in India

Wondering why life insurance is important? The simple answer is that the future is always uncertain. Purchasing a life insurance plan is a sound financial decision. Life insurance provides adequate coverage for you and your family members due to untimely death.

Over the last few years, the number of individuals dying at an early age has increased considerably. Thus, if you are the only earning member in your family and if something happens to you, life insurance will provide financial assistance and secure your loved ones' future financially. ...Read More

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Importance of Life Insurance

Importance of Buying a Life Insurance Policy in India

Importance of Buying a Life Insurance Policy in India
October 14, 2024

Table of Content

 

Why Do You Need Life Insurance?

If you are the sole earner of your family, the loss of your life would be devastating for your family. It would also result in a significant financial loss for your family members. That’s why the importance of life insurance cannot be understated. It provides financial support to your loved ones to address the loss of income and keep on living. 

Apart from this, there are many reasons why you need life insurance. Let's explore them in detail:

  • Secure Your Family’s Financial Future

Life insurance provides financial protection to you and your family. Thus, if you are the only breadwinner of your family, you should be concerned about financially securing your family members. By choosing a life insurance policy, you can provide them with comprehensive financial coverage. Their financial needs are taken care of in case of unfortunate incidents. 

However, to meet both the emergency and personal needs of the insured individual, one must choose an appropriate life insurance policy.  

  • Accomplish Your Financial Goals

Life insurance plans like savings plans and endowment plans are ideal for you if you want to experience the benefits of both savings and life insurance under a single policy. By paying a single premium amount for both aspects, you can guarantee financial stability and security for your loved ones with proper planning of your financial goals. 

Then, upon maturity, your savings plan will help you achieve your desired financial goals without the need to depend on anyone else.

  • Brings Peace of Mind

Buying a life insurance policy keeps you assured of protecting your family members even when you are not around. Moreover, if you opt for a retirement insurance plan, you will receive a lump sum or regular income after retirement and keep your loved ones financially secure and steady at the same time. Thus, you can find peace of mind as you keep your loved ones secure. 

  • Save Tax

By opting for a life insurance plan, you can save on taxes. The premiums you pay for life insurance are deducted from your taxable income up to ₹1.5 under Section 80C of the Income Tax Act, 1961*. Additionally, Section 10 (10D)* offers a full exemption of taxes. However, including a health rider in your life insurance policy provides tax benefits under Section 80D of the Income Tax Act.  

Why Is Life Insurance Important?

Purchasing a life insurance policy is important as it provides financial protection to your spouse and children from facing loss of income in the event of your unfortunate demise.

Let’s consider the factors below to gain a proper understanding of the importance of life insurance:

  • Corpus Creation

Several insurance policies provide a combination of comprehensive coverage and investment options under a single plan. ULIP, endowment plans, and guaranteed return plans are some examples of such plans. 

Using these insurance policies, you can create a corpus smartly. You can then utilise the built-up corpus amount to meet your financial objectives, such as marriage, educational expenses, and more. 

  • Clearing Debts

A life insurance plan with death benefits can replace your family's income if there is a sudden death. Thus, your nominee or beneficiary can use the payout to meet essential expenses such as paying a mortgage or tuition fees for your children. The coverage amount can also be used to pay off debts such as car loans and credit card bills. 

  • Fulfilling Long Term Goals

Planned savings are essential to achieve long-term goals in life. By opting for a life insurance and savings plan, you can achieve those goals and provide life insurance coverage to your loved ones. These plans let you follow a disciplined saving habit. 

Paying an insurance premium every month in a small amount allows you to accumulate funds over time. What's better is that your small invested amount keeps on growing. So, in the future, you will have adequate wealth accumulated to fulfil your long-term goals. 

  • Achieve Retirement Goals

Long-term savings and pension plans assist in achieving retirement goals. Proper planning for retirement is crucial in the present-day world. If there is no pension scheme after retirement and has to stay dependent on children, planning for retirement becomes essential. Look for a pension plan that lets you build a large corpus over time and generate a steady flow of income post-retirement. 

There are many life insurance plans as well that assist in creating a corpus for retirement and achieving retirement goals. The corpus can then be utilised further to purchase an annuity plan that provides a stable income through a pension. 

  • Tax Benefits

Other than providing financial protection, one of the additional benefits a life insurance plan offers is tax benefits. Irrespective of the type of life insurance policy chosen, you will be eligible to save taxes. The premiums you pay for life insurance are subjected to tax deductions of up to ₹1.5 Lakh under Section 80C of the Income Tax Act. Alongside this, the death benefits are also exempted from taxes under Section 10(10D)*. 

  • Peaceful Life

Above everything else, life insurance provides you with peace of mind. With insurance by your side, you can stay assured that you have done everything possible to provide financial security to your family members. Moreover, if you are ready to invest in a good life insurance plan, check out the different types of life insurance available. There are plans designed specifically for every individual to meet desired needs. 

Why Life Insurance Is the Most Important Part of Your Financial Planning?

Life insurance is an essential component of your financial planning for several reasons. Different policyholders have different needs on which their chosen life insurance can assist them to meet their desired objectives. 

Let’s look into the reasons why the importance of life insurance in India in financial planning is repeated by financial advisors: 

  • Safeguards Your Family

If you are the sole earning member of your family, you should be concerned about your loved ones. Upon your sudden demise, your family member will struggle to meet daily expenses, maintain the desired standard of living, or meet your child's educational expenses. 

Thus, choosing the right life insurance plan is crucial. Your life insurance policy can ensure comprehensive financial coverage to let them enjoy their standard of life without compromises. Moreover, they can pursue their life goals and pay off any debt you may have left behind. 

  • Protects Assets

By opting for the right insurance plan, not only do individuals stay safe, but they also protect their valuables. Insurance protects valuable assets that include cars, homes, and businesses. It safeguards these assets against theft and damages, thereby lowering the financial burden of repairing the assets or replacing them. 

  • Builds Wealth

As a policyholder, you need to keep paying premiums over a defined period to get a fixed sum assured and maturity benefits. This builds the habit of long-term savings. Investing regularly over a prolonged period ensures a wealth corpus is built up to meet the desired financial needs at different stages of life. 

These kinds of investment opportunities create a regular source of income over time to let you enjoy your retirement years. 

  • Protects Against Critical Illnesses

Many insurance companies are providing additional insurance coverage, commonly known as riders. These riders, when included in your chosen life insurance policy, enhance your coverage. For instance, an accidental death benefits rider provides your nominee with an assured payout upon death from an accident. 

On the other hand, if you opt for a critical illness rider and if you are down with any critical illness, you will then receive an assured lump sum amount to meet treatment costs. 

  • Saves Taxes

For tax-related purposes, life insurance provides tax benefits for the premiums you pay for a life insurance policy. The premiums paid are eligible for tax deductions under Section 80C of the Income Tax Act, 1961*. 

Alongside, the maturity amount you receive is also exempted from taxes under Section 10 (10D) if the premium amount does not exceed 10% of the sum assured. Thus, you can experience the dual benefits of taxes and financial protection. 

What Are the Points to Consider While Buying a Life Insurance Policy?

Choosing the right policy is essential for the maximum benefits. Let’s look into the factors to consider for buying the right term insurance plan and reach an informed decision making:

  • Assess Your Current Life Stage

As you age, you’ll pass through the stages of life. This includes your marriage, becoming a parent, getting your first job, retirement, and so on. When an individual policyholder passes through these life stages, they usually have different financial goals and objectives. Planning ahead enables one to get funds in time to reach these goals. 

  • Calculate the Amount of Life Coverage You Need

Your required life coverage amount depends on the number of your dependents, liabilities, current and future income, along with your existing life coverage. Thus, calculating your life coverage amount while choosing a life insurance plan is of utmost importance. Ideally, the life coverage should be about 10 times your yearly income. 

  • Verify All Fees and Charges

Make sure to understand the fees and charges of your chosen life insurance plan. Alongside, you should consider the tax benefits included under the insurance policy. 

  • Understand the Claim Settlement Ratio

To gain a proper understanding of the company's claim settlement process, make sure to check the quality and speed of their claim settlement. First and foremost, your target is to know the claim settlement ratio of a company. 

This ratio reflects the number of claims a company has settled in comparison to the number of claims received by the company. However, always choose a company with a higher claim settlement ratio. 

  • Premium Amount

The premium amount is an important factor to consider. Compare the premium amount insurers provide to find out a policy that offers comprehensive coverage at an affordable premium. Consider using a premium calculator to find out the premiums you need to pay for your chosen life insurance plan. 

Selecting the Right Insurance Policy

Choosing the right term insurance policy is every individual policyholder's responsibility so that their dependents can stay financially stress-free in life. When you are planning to purchase a life insurance policy, here are important factors to consider. 

  • Adequate Coverage

To choose the right insurance policy, assess your family's required coverage by considering factors such as fixed expenses, retirement corpus, long-term goals, and the number of dependents. Additionally, examine if there are any existing resources for your family to rely on for paying off debts and dues during unfortunate events. By answering these questions, you'll find it much easier to determine the ideal coverage amount. 

If you are new to finance and insurance, you can consult with financial experts to learn about different policies and evaluate your insurance needs. Moreover, this assessment will ensure adequate coverage for your loved ones. 

  • Premium Paying Ability

Before choosing the right insurance plan, evaluate your budget and choose a premium amount that meets your finances over a long time. Premium affordability is crucial for maintaining a term insurance plan over time. 

It is wise to purchase a reasonably priced insurance plan providing health coverage at the very beginning to ensure you are covered properly, and your premium-paying ability is manageable. With time, you can make changes in your plan and increase coverage amount with an increase in income, financial requirements, and family size. 

  • Policy Tenure

The policy term also plays an important role in choosing a life insurance plan. If you choose a longer duration plan, your premium amount will be high. The tenure of the policy is determined by how long you are willing to offer financial security for your family during emergency times.

Usually, the policy tenure for insurance plans varies between 5 to 40 years. A policyholder should choose a suitable term for their goals; for instance, choosing a long-term plan for retirement benefits. 

  • Personal Factors

While determining the kind of life insurance plan you need, consider your age, lifestyle, and gender. For example, if you are in a sector where there is high risk involved, opt for a plan providing comprehensive coverage accordingly. You can also include suitable riders in a critically illness insurance plan to experience additional benefits. 

Summary

A life insurance plan can serve several purposes, considering your respective needs and the type of life insurance policy you have chosen. Among the different life insurance options available, make sure to select a policy that provides you and your loved ones adequate coverage during times of need. 

The importance of life insurance is noticed significantly when you start earning and have family members dependent on you for their well-being. Life is unpredictable, and thus, staying financially prepared with a life insurance plan will be helpful. 

FAQs on Importance of Life Insurance

1. Why is life insurance more important?

Life insurance is more important because of the financial protection it provides to your family members during the sudden demise of the policyholder. Life insurance assists the policyholder's family in staying financially independent and meeting financial obligations during times of need.

2. Why did you choose life insurance?

Life insurance offers several benefits. In addition to providing life coverage to your loved ones, the right plan lets your wealth grow over time, inculcates a disciplined savings habit, develops proper planning for retirement, and more.

3. What is the waiting period for an insurance policy?

The waiting period for an insurance policy usually varies between 30 to 90 days from the day your chosen policy begins.

4. Which type of life insurance should you buy based on life stages?

You should buy a life insurance plan considering your life insurance needs. Most people should start early to pay lower premiums. When you want to invest in the future, choosing a savings plan or unit-linked insurance plan will be ideal. Choose a retirement plan if you are planning your retirement during your 40s or 50s.

5. What is the premium payment frequency in life insurance?

The premium payment frequency is the number of times you plan to pay for your life insurance premiums in a year. You can choose to pay your premium amount monthly, annually, quarterly, half-yearly, and annually. The frequency allowed depends on the insurer and your chosen plan.

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Francis Rodrigues 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.

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Vishal Subharwal 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.

#Provided we have received all the relevant and required documents and no further investigation is required. Claim settlement process would be completed within stipulated timelines once the claim request is approved.

***Online Premium for Life Option for HDFC Life Click 2 Protect Super (UIN: 101N145V05), Male Life Assured, Non-Smoker, 20 years of age, Policy term of 25 years, Regular pay, Annual frequency, exclusive of taxes and levies as applicable. (Monthly Premium of 622/30=20.7).

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