Providing protection and financial security to the loved ones is the smoothing that everyone longs for and a life insurance policy is the best way to accomplish that. Apart from financial security and protection, there are many other life insurance benefits, which are discussed below:
- Death benefit In case any unexpected thing happened to the insured, which results in the loss of income for their family, the insurance company provides compensation in the form of the death benefit. The appointed nominee receives the full sum assured plus the bonus accrued over a period.
- Valuable return on your investment Several financial advisors in India suggest that everyone must invest in a life insurance policy not only to provide your family with the financial protection when you are not around but also from the perspective of gaining valuable returns from the investment. Many life insurance schemes in India offer a decent recent in the form of bonus that no other investment tools offer.
- Tax Benefits One of the many advantages of life insurance is that it provides many tax benefits. If you are a salaried employee and have purchased a life insurance policy, you can claim deduction under Section 80C. Currently, under this section, you can get a maximum tax deduction of Rs. 1, 50,000.
- Availability of loan In the event of any emergency where you need money desperately, you can take advantage of your life insurance policy and take a loan against it. Today, almost all the major insurance companies in India provide loan facilities to the policyholders. You can borrow a certain percentage of the cash value of the policy, or the sum assured depending on the policy provisions. Make sure that you check with the loan policies with the insurer before you subscribe for the policy.
- Aids in financial planning through different life stages Planning your finances well through different stages of life is paramount. This is where life insurance can play an important part. You can take leverage the benefits of term life insurance and make provisions for financial support to your family in the event of your sudden death.
- Guaranteed income Your family feel secured because you bring in regular income to cater to their needs. The income you earn aids in paying the loan (if any), rent, daily bills, child education and other household expenses. Certain life insurance policies provide regular pay-outs, which can compensate for the loss of income due to the death of the family’s earning member.
- Additional coverage Many insurance companies in India allow the life insurance policyholders to purchase additional cover, over and above the default coverage included in the policy. This additional coverage is called riders. The riders allow you to increase the coverage and get comprehensive coverage against risks that may not be included in the main scope of the life policy.
- Security of business There a few life insurance companies in India that give an option, wherein if you have bought a policy and run a business, then your partner can purchase a share of the policy holder’s after the death policyholder. In this case, the business partner will have to sign an agreement with the life insurance company and the pay-out receive after selling the share will be given to the appointed nominee. However, you must know that the dependent or the nominee of the policyholders do not get any stake in the company.
- Can be expensive for old-aged people Buying a life insurance policy would seem to be the most logical thing to do when you are young and why not? The premium for young buyers is quite affordable. The premium amount for a life insurance policy is determined by your personal medical condition, family’s medical condition and your age.
- The returns on life insurance are not significant Certain life insurance policies like a whole life insurance policy provide the dual benefit of investment-cum-protection. The cash-value component of the whole life policy is a great way to save money for your future needs like retirement and providing coverage for the family in the event of your demise.
- Insurers may not pay the benefit There have been many instances wherein the insurance companies have denied paying the sum assured or the death benefit to the policyholder or the nominee. A lot of times, the insurance company uses various tricks to evade paying the benefits even after the maturity of the policy. They would cite many hidden charges or clauses to reduce the pay-out. It is, therefore, important to carefully understand the finer details of the policy and choose a company that has a positive pay-out rate. Further, it would be best advised to consult your financial advisor about the pros and cons of the policy before entering a contract.
- Complex policies In India, many insurance policy providers offer a wide range of life insurance policies to suit the different needs of the customers. While the vast choices give you the liberty to choose the best, it can also create confusion in the minds of the policy buyers, especially the ones who have no prior experience of buying an insurance policy.
- Exclusions All the life insurance policies do not provide comprehensive coverage; there are bound to be certain exclusions. For example, your insurance policy may not cover loss of life due to drug overdose or involvement in criminal/illegal activities. In such cases, depending on the type of insurance policy you have purchased and your needs, you may have to buy an additional rider to increase the coverage. The riders will automatically increase the premium amount.
Apart from providing protection against death, many life insurance policies provide the benefit of monthly income, which is a great boon for people old-aged people or people who are nearing the retirement age and have diminishing income. While purchasing a life insurance policy, make sure that you compare the features and benefits of different policies and choose the one that best suits your needs so that you get maximum protection.
Also, life insurance is a safe investment tool as compared to other investment option. The money you invest in your policy is returned to you in full as the sum assured at the end of the term or after the demise of the insured.
This will not only help them cope with the financial obligations well but can also help them live a financially independent life without having to compromise on their lifestyle. Also, by investing in a life insurance policy, you can meet your various future goals like child marriage, paying your child’s education, building a dream home or building a corpus for post-retirement life. Make sure that you choose the right insurance policy that suits your needs.
The riders may include coverage against personal accident, waiver of premium payments, critical illness, loss of income due to a disability, etc. The additional coverage can also help you get tax benefits that are in line with the life and health insurance policy. For example – if you have opted for a critical illness rider, you can claim deduction on the premium under Section 80D of the Indian Income Tax Act.
Just like every financial product in the market, there are life insurance pros and cons. You have seen the various pros of having a life insurance policy, now lets us look at some of the disadvantages of life insurance.
But if you are over 40 or if you are nursing an illness or if you have a history of bad medical condition in the family, the insurance company will consider you as a risky buyer and so to mitigate the risk they charge a higher premium. So, if you are old or carrying a chronic ailment, a life insurance policy can be helpful for your loved one, but it would an added burden on your expenses.
However, you must know that the returns offered on the investment are much lower than other investment tools. You can invest your hard-earned money in a term insurance plan and invest the additional cash in other investment tools and increase your chances of earning higher returns.
Also, different insurance policies have different features, and it can be novice buyers to understand the difference. Some policies are simple, and some are not so simple, which can be beyond the understanding capacity of a common man. It can be daunting to choose the right life insurance policy.
The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.
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