Advantages and Disadvantages of Life Insurance Policy in India

Insurance has lesser penetration in India than in many countries. Many people underestimate the importance of obtaining a Life Insurance policy at the right time and believe the benefits are insignificant.

The easiest way to explain Life Insurance is as a legal agreement between the insurance company and the policyholder. In this contract, the policyholder agrees to pay a certain premium for a fixed period while the insurance company assures that their nominees will get the insured amount should an unfortunate event occur with the policyholder.Also read: Life Insurance differs from general insurance

1. Death benefits and valuable return on investment

The sole aim of Life Insurance policies is to provide death benefits to the policyholder's family. If the policyholder passes away while the policy is active, the family gets significant compensation from the insurance company.The insurance company fixes the compensation beforehand, significantly higher than the deceased's regular income, making Life Insurance policies worth considering.Life Insurance policies also provide a monthly income option if you don't want a lump sum payout.Also read: How To Claim Life Insurance Death Benefit?

2. Tax Benefits

According to Indian tax laws, Life Insurance policy payments are exempt from Income Tax subject to some conditions. You can get a tax deduction if you regularly pay a Life Insurance premium . A Life Insurance plan premium can be tax deductible under Section 80C, up to Rs. 1.5 Lakh. This way, by buying a policy, you can prevent your future and current savings from going into taxes.

3. Assists in financial planning and guarantees income

People want a secure financial future, and they must plan for it. Life Insurance policies can play a pivotal role in financial planning. If something uncertain happens, the payout from Life Insurance ensures that your family's finances won't be significantly affected.A secure future allows you to make better financial plans and achieve your life goals early. Furthermore, you can always purchase a policy that guarantees monthly income to your family after your death, ensuring that their lifestyle remains unaffected.

4. Option to avail of a loan on the policy

Life Insurance policies can offer you liquidity in times of need. Providers allow their policyholders to avail of loans over existing policies .Providers allow their policyholders to avail themselves of loans over existing policies. The loan amount equals a certain percentage of the cash value or the sum assured, depending on the company's policies. Check the loan policies at the time of issuance of a new policy.

5. Additional coverage

You may already have Health Insurance or a group insurance policy, but having Life Insurance has its importance and benefits. While Health Insurance covers your hospitalisation expenses, the advantages of Life Insurance include providing additional coverage to your family should you pass away. It offers a level of financial security to your loved ones who are dependent on you.

6. Mortgage Redemption

Many home buyers take out loans to fulfil their dreams of building or buying homes. If the policyholder, who is the family's breadwinner, dies with an outstanding loan amount during difficult times, Life Insurance policies offer substantial coverage. They assist your family in paying off the outstanding mortgage after your death, ensuring the home's security.

1. Expensive at an older age

Life Insurance policies are great investments at an early stage of your life. You'll face higher premium payments if you don't purchase a policy early. Furthermore, the benefits you receive might not compare favourably to the premiums you pay.

2. Insurance benefits may not be realised

Life Insurance policies can be complex and purchasing one does not guarantee your family's financial safety. Numerous incidents show that even when people pay their premiums on time, their families sometimes don't receive the insurance benefits. Hence, advisers recommend fully understanding a policy before purchasing and verifying that the company can pay the insured sum.

3. Returns may not be significant

There are several types of Life Insurance policies with varying financial returns. Some, like ULIP plans , are linked to investments and their returns are based on market performance. If you opt for these, and the markets don't work in your favour at the time of withdrawal, your returns may not be significant compared to the other investments and expectations.Also read: Benefits of ULIP

4. Complex Life Insurance policies

Numerous policyholders often skim through the paperwork without a thorough review. Policy documents often contain significant technical jargon, which complicates its comprehension for buyers. Ultimately, they must rely on their insurance agent regarding the policy's crucial terms and conditions and its inclusions and exclusions.

Life Insurance policies often have their "ifs and buts.". A policy contains numerous exclusions, and purchasing one without fully comprehending all these exclusions may not be to your best advantage. It is always better to understand all the terms and conditions and, if required, buy an additional rider to increase the coverage and to include certain specifics you may want.

Remember, Life Insurance is not just about earning returns; it is more than that. It is a crucial financial tool to secure your family's future before uncertainties arrive. You can understand insurance plans by investing some time and conducting research. Speak to a financial advisor if you have questions or need assistance selecting the best option.