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life insurance is a critical element of an effective financial plan. Although a Life Insurance policy primarily focuses on providing a safety net for you and your family, it can also have other important uses. Policies these days offer a variety of supplementary advantages. This article explores some of these alternate uses of Life Insurance. Also Read: What you need to know about buying Life Insurance policies
Five uses of Life Insurance policies that you must know
Assist in growing wealth
A common misconception is that a Life Insurance plan only kicks into action after the policyholder’s demise. Contrary to this belief, certain policies provide returns right from the start. For instance, unit linked insurance plans are Life Insurance products that combine elements of investing and insurance. Investing in ULIPs can earn steady returns through market-linked investments while enjoying life cover. Plans like ULIP can assist in generating additional income and growing your wealth over the long term.
Substitute for income
A steady stream of income is vital not just to meet your daily needs but also for mental peace. But if you are a retiree, this may be difficult. Contributions to a Life Insurance plan can help you in such situations. For instance, retirement plans ensure regular income even after you stop working. Critical Illness and other health-related riders provide monetary relief if an unforeseen ailment or accidental disability forces you to sacrifice your career. You can use Money Back Insurance plans to fund your long-term financial goals. Endowment and whole-life policies help you acquire a cash value you can liquidate when needed. This way, benefits offered under Life Insurance plans can substitute your income and provide you with financial assistance when needed. Also Read: What are the guidelines for Life Insurance buyers?
Leave a legacy
The concept of ‘legacy’ runs strong in Indian households. A Life Insurance plan can also help you leave behind a legacy by setting aside a large sum for your nominee. In your absence, the insurer will pay the nominee this money as a lump sum. The nominee can then use it to meet expenses, pay off debts, manage family costs, fund children's education, buy a house, etc.
Ease tax burdens
According to the Income Tax Act of 1961, you can claim a tax deduction of up to ₹ 1 Lakh on premiums for your Life Insurance, which is deductible under Section 80C, provided you file taxes under the old regime. Any extra premium you pay to obtain critical illness or other health-related add-ons with your Life Insurance plan qualifies for tax benefit under Section 80D.
Support a charitable cause
You can also use your Life Insurance for philanthropic purposes. Apart from using trust funds and family foundations to fund social causes, you can name the charitable organisation your Life Insurance beneficiary so that your contribution continues even after your death. Also Read: How to choose a Life Insurance policy in India
Key Takeaway
- Life Insurance plans are not limited only to providing financial security after the policyholder’s demise.
- You can leave a legacy by naming a beneficiary under your Life Insurance plan.
- Certain types of Life Insurance policies can come in handy if you are looking for steady income even after retirement.
- Tax benefits on premiums you pay towards your Life Insurance plans can help in additional savings.
- Making charitable donations is also possible through Life Insurance plans.
Also Read: How to compare Life Insurance quotes online
FAQS - FREQUENTLY ASKED QUESTIONS
How does cash value in Life Insurance work as a source of retirement income ?
Cash value in Life Insurance products, such as Whole Life, refers to a portion of the premium accumulating over time and earning interest. You can access this cash value through withdrawals or policy loans. By using the cash value, you can supplement your retirement income. However, be sure about the terms of your policy, applicable taxes, charges on the policy's surrender, etc., so you can easily access the cash value.
Can Life Insurance be used as collateral for a loan ?
Yes, Life Insurance policies with a cash value component can be loan collateral. You can borrow against the cash value of your policies, typically at a low-interest rate. However, the loan must be repaid, as the policy’s death benefit can be affected by unpaid loans.
Can I change the beneficiary of my Life Insurance policy ?
Yes, you can change your Life Insurance policy's beneficiary as long as it aligns with the terms and conditions of the policy. Whether you want to name a charity, a family member, or a business entity, updating the beneficiary designation allows you to direct the proceeds according to your wishes.
Can Life Insurance assist in business succession planning ?
Yes, Life Insurance can assist in planning your business succession by facilitating a smooth business ownership transition. It provides funds to buy out a deceased partner's or shareholder's share.
Can Life Insurance be used for mortgage protection ?
Yes, you can use Life Insurance for mortgage protection by providing coverage to pay off the outstanding mortgage balance if the policyholder dies.
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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