All the investments we make, the savings we accumulate and the policies we buy aim to protect and secure our loved ones. Whether it is the education of our children or a home for our parents, we consistently strive to provide for them and build their future. Life insurance is one such policy to protect what matters to you.
Life insurance is a financial plan for the future of your family. It is an essential financial safeguard that comes with various long-term benefits. The primary purpose of life insurance is to provide financial support to you and your family in the event of an unfortunate loss.
Here is everything you need to know about life insurance, from life insurance’s definition to its benefits, including important points to remember.
What is life insurance?
Life insurance is a contract between the individual (policyholder) and an insurance company (the insurer). The policyholder pays a predetermined sum of money to the insurer, called premiums, and the insurer agrees to pay a lump sum amount (death benefit) to the policyholder's specified beneficiary.
The benefit earned from life insurance can be used for different purposes, such as to cover the cost of the funeral, education, pay outstanding debts, or meet other financial obligations. One of the main benefits of life insurance is that you can get comprehensive financial protection at an affordable price.
Types of life insurance
While there are various life insurance policies to help cover different eventualities, here are the four main types of life insurance policies:
#1. Term life insurance
Term life insurance covers a particular period, such as 10, 20, or 30 years. In case of the policyholder's unfortunate demise, term life insurance pays the death benefit to the beneficiaries. Since this type of life insurance has a fixed period, the death benefit lapses once the term ends. However, if you want to continue with the term life insurance, you can opt to renew it and continue financial cover.
#2. Whole life insurance
Whole life insurance is a type of life insurance that provides lifetime coverage. Whole life insurance, in addition to the maturity benefit, also comes with cash value, which can help you boost your savings.
Since the insurance company invests a portion of the premium payments, the resulting cash value increases tax-deferred.
#3. Money back policy
Money back policy provides insurance and periodic returns throughout the policy term. With a money back policy, you receive returns after a premium payment term ends. Additionally, you can get a guaranteed cash benefit and bonuses at the end of the policy term.
#4. Endowment policy
The endowment policy provides the policyholder with a lump sum amount at the end of the premium term. With an endowment policy, you can choose a premium tenure that suits you. Your loved ones will receive the amount of the life insurance covered by your plan plus any additional sums specified in your plan.
Benefits of life insurance
Life insurance policies are essential to safeguard your future and the future of your loved ones. Here are some benefits of a life insurance policy:
#1. Financial Security
Life insurance looks after your loved ones and provides financial security. The benefit received through the life insurance policy can be used for different purposes, such as the education of your children, paying existing debts or marriages, etc.
#2. Tax Benefit
The tax benefit is another advantage of buying life insurance. Under section 80C of the Income Tax Act of 1961, you can claim a tax deduction of up to ₹1.5 lakhs from your income on the premiums you pay towards life insurance.
#3. Risk mitigation and coverage
One of the major advantages of life insurance is risk mitigation and coverage. Life insurance protects you and your family financially against the possibility of premature death, thereby mitigating risk and providing financial coverage. Buying a life insurance policy ensures your loved ones are cared for in case of an unfortunate event.
#4. Cover pre-existing debts
Life insurance is a financial security. Even if there are any pre-existing debts that the policyholder could not clear before death, life insurance helps to cover them. Getting a life insurance policy will remove the burden of debts from the shoulders of your loved ones.
#5. Guaranteed fixed returns
One of the main benefits of life insurance is the promise of a sum of money after a specific period. Whole life insurance, money back, and endowment policies offer this benefit. Ensure that you study the structure of various life insurance policies carefully. Whatever option you select, you can be sure you will get fixed returns.
Points to keep in mind when considering a life insurance policy
While there are significant benefits of life insurance, there are certain aspects that you should consider to gain the full picture. Here are some factors to keep in mind to maximise the benefits of life insurance:
#1. Conduct your research before committing to a life insurance policy. Look for a life insurance policy that offers low premium rates.
#2. Select a life insurance policy with a flexible payment plan.
#3. Selecting a long-term life insurance policy for maximum coverage is more beneficial.
#4. Carefully consider the riders offered by different life insurance policies. Riders can help you boost life insurance coverage and enhance the benefits.
#5. Study the exclusions and limitations of a life insurance policy before buying it. Knowing the exclusions and limits will make you aware of the circumstances where the death benefit may not be applicable.
Understanding and examining all the guidelines of different life insurance policies can help you get a good comparison of all the options available. This way, you can choose a policy that suits you the best.
To conclude
A life insurance policy is a long-term financial security for you and your family. The main benefits of life insurance are mental peace, financial security, fixed returns, and tax deductions. To get the most out of the benefits of a life insurance policy, read the terms and conditions of your insurance documents carefully. Additionally, compare policies from different financial institutions to find the one that suits you best.
But as important as these are, you must also find a trusted and reliable insurer. We at Tata Capital can help you here. With a simple process and attractive terms and conditions, we ensure your loved ones never feel insecure about their future.
Visit the Tata Capital website today!
05 February 2024
6 mins read
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