How to Use Life Insurance to Build Wealth?

When it comes to Life Insurance, we always think of it as a safety net. But did you know that some Life Insurance plans can be a compelling option to build wealth?In this piece, we will discuss the various ways in which we can use Life Insurance as an insurance-cum-investment tool. Before that, let’s consider the various Life Insurance plans in the market. Also read: What is the process of claiming death benefit under Life Insurance?

A Life Insurance policy is an agreement between you and the insurer under which the insurance company promises to pay your beneficiaries a certain sum in case of your untimely demise. Various Life Insurance policies exist, some safeguarding your family’s future and others serving as investment instruments. Before selecting a Life Insurance plan, it’s crucial to comprehend your investment goals.

A Term Plan is a plain Life Insurance policy with a protection benefit wherein the nominee(s) gets a sum in the event of the policyholder’s death. The premium paid towards the policy is utilised only to offer the life cover, and there is no financial return or survival benefit. As a result, the term plan is quite affordable.

The insurance company transfers a component of the premium paid to an investment corpus when offering Endowment or Money Back policies, which are insurance-cum investment plans.The policy endows several financial benefits on the policyholder besides offering a life cover. It could be a maturity benefit paid out as a lump sum when the policy matures or at regular intervals.These insurance plans also offer other incentives encouraging you to keep your investments and extend maturity.

In Unit-Linked Insurance Plans (ULIPs) which are investment-cum-insurance plans, the company invests a component in an investment fund that links to market returns. These returns could be pegged to the equity market, debt market, or both, with ULIP investors having the option to choose a plan based on their risk appetite and goals.If you are investing in long-term goals like child education, marriage, or buying a retirement home, investing in ULIP can help you fulfil your goal.

Below is a checklist to build a corpus through Life Insurance plans.

Start early:

As with all investments, starting early in life gives you the advantage of compounding your wealth over long periods.

Choose the right policy:

Choosing the appropriate product based on your goals, risk tolerance, and investment horizon is crucial. For example, while some investors might seek regular returns, it could mean sacrificing higher future returns. On the other hand, those with a preference for equities might find ULIPs more suitable. It’s advisable to consult an insurance advisor to determine the best fit for your needs.

Keep up the payments:

It is important to make regular payments if you have started on any plan, as missing out on payments could mean losing the benefits the plan offers.

Monitor and review:

As your goals change, some policies may not fit your portfolio. Monitor your policies, especially if they are market-linked, to see if their performance is in line with expectations and act if it remains below par for a long time.

The Life Insurance policies discussed above, besides offering protection against life risks and an investment component, also help you save on your tax bill.You can claim the premiums paid on Life Insurance policies as tax deductions. This provision is available under section 80C. The sum assured and accrued bonus you receive through your Life Insurance policy claim is exempt from taxes under Section 10 (10D) of the Income Tax Act.Overall, insurance is a relatively safe and strong way to add to your financial strength in the long term. Also read: How to protect your family with Life Insurance?

• Life Insurance is an important part of wealth creation.
• Wealth should mean meeting all financial needs comfortably and achieving financial goals.
• Choosing the right type of Life Insurance is crucial for building wealth.
• Unit-Linked Insurance Plans (ULIPs) combine Life Insurance with investment opportunities and offer market-linked returns.
• Endowment or Money Back policies provide less risk and bonuses to encourage long-term investments.
• Life Insurance policies offer long-term financial benefits and act as a wealth-building vehicle for the future.
• Life Insurance policies provide tax deductions under Section 80C for premiums paid and tax exemptions under Section 10 (10D) for the sum assured and accrued bonus.
• Insurance is a safe and strong way to enhance long-term financial strength.