Financial Security or Savings? Why Should you Buy Life Insurance

Over the past decade, with the growing awareness about the importance of buying a life insurance policy , the number of life insurance buyers has increased significantly. Many people invest in life insurance policies like a term plan to secure their family's financial future against the uncertainties of life.A term plan is one of the most uncomplicated life insurance policies that provides a death benefit to the nominee if the policyholder passes away before the policy term. As the name suggests, a term life insurance policy provides coverage only for a limited period. This means if the policyholder outlives the insured period, the policy will lapse, and there is no maturity benefit.On the other hand, other insurance plans like the ULIPs (Unit Linked Insurance Plans) provide a death benefit and act as a vehicle for long-term savings and give you valuable market-linked returns. If you are looking for the best life insurance policy, you must be aware of the following differences between policies for financial security and savings.

• Tenure The pure protection plans, like the term insurance policies, have a fixed tenure. Based on your current age at the time of buying the policy and your specific needs, you can buy a term plan for 10,15, 20, or 25 years.
  The insurance plans with savings features have a flexible tenure. Some plans come with a lifetime renewability option and provide coverage until you reach 100 years.
• Death benefits The pure protection plans provide a death benefit in the event of policyholder's demise within the policy period.The savings plans offer both death benefit as well as maturity benefit. Thus, you can be assured of getting valuable returns on the maturity of the policy. Such plans provide better financial security to the family.
• Flexibility No matter if you hold a protection plan or a savings-based insurance plan, the insurance companies offer various flexible features.If you have a term life insurance policy , you can easily surrender or opt-out of the plan at any time you want. The surrender process is much easier than the process for policies that have a savings component. The term plans must be renewed annually, and most insurance companies allow you to convert the plan into an endowment plan with the same sum assured. However, the premium may vary based on the plan you choose.In the savings insurance plans, the maturity benefit is paid only at the end of the policy term. In case of your demise before the policy period, your family will receive only the death benefit equal to the sum assured. When you surrender a savings insurance plan, you may get back only the premium amount after deduction surrender charges.
• Premium One of the most significant reasons why many people prefer buying a term insurance plan is that it provides high coverage at an affordable premium. You can buy a term plan for premium as low as Rs. 500 per month. The term plans are an ideal choice of insurance policy if you want to provide financial security to your family even in your absence.Most of the savings plans have a high premium, and it increases as you increase the coverage amount. Also, most savings-based plans provide reasonable returns between 5% to 7%. If you are looking for better returns, it is advisable to invest in market-linked investment schemes like mutual funds.
• Tax Benefit The premium paid for both term insurance policy and savings plans is eligible for tax benefit under Section 80C of the Indian Income Tax Act. Additionally, the death benefit received is tax-exempt under Section 10(10D) in the hands of the nominee.

Final Word Now that you know the difference between life insurance for financial security and a savings plan choose the right policy to suit your specific needs.

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.