Insurance, What is life insurance ,Benefits of Life insurance, how it is helpful..
Table of Contents
What is Insurance ?
Insurance is a means of protection from financial loss. It is a form of risk management, primarily used to hedge against the risk of a contingent or uncertain loss.
An entity which provides insurance is known as an insurer, an insurance company, an insurance carrier or an underwriter. A person or entity who buys insurance is known as a policyholder, while a person or entity covered under the policy is called an insured. Policyholder and insured are often used as but are not necessarily synonyms, as coverage can sometimes extend to additional insureds who did not buy the insurance.
What is Life Insurance and how is it helpful ?
Safeguarding your family’s future is a must, particularly if you are the only or primary breadwinner in the household. Life insurance is what keeps your family safe and sound even when you are not around. Life insurance provides a protective financial cover for you and your loved ones. It ensures that you and your dear ones always get financial support.
It can be divided Into several types for variety needs:
- Term Insurance: Term insurance plans provide life cover to protect your loved ones at most affordable rates. This is the simplest form of life insurance.
- ULIP: Unit linked insurance plans, better known as ULIPs, combines life insurance with financial investment. Unit-linked insurance plans offer a wide choice of fund options and portfolio strategies.
- Endowment Plan: Traditional savings insurance plans are risk-free investment plans that also offer insurance shield. Better known as endowment and money back policies, traditional plan returns are not linked to the stock market, and hence carry lower risk.
- Savings Plan: Savings Plans are life insurance plans that combine the benefits of a life insurance cover and investment. So, in addition to securing yourself and your family, you also create a corpus to meet your financial goals at every life stage.
- Whole Life Insurance Plan: Whole Life Insurance Plan cover you up till 99 years of age. They are different from ordinary insurance policies which have a defined term of say 10, 20 or 30 years, and are of use when you have financial dependents for a relatively long period, possibly your entire life.
- Retirement and Pension Plan: Retirement insurance plans offer ways to build your own pension income. You can either choose to accumulate your retirement corpus as per your risk appetite, or get guaranteed immediate income for life by investing a lump sum.
Why life insurance is a crucial part of any sound financial plan?
There are 5 reason Why life insurance is a crucial part of any sound financial Plan:-
- Financial security
- Secure your child’s future
- Prevent Loan burden
- Retirement planning
- Tax benefits
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What are the advantages of Life Insurance?
- Peace of Mind/ Financial Security – Having life insurance provides the ultimate peace of mind. This is because if someone were to meet with their demise, they know their family and loved ones will have a financial safety net.
- Wealth Creation – Some life insurance plans also offer you the opportunity to create wealth. Apart from life cover, these policies invest your premium in different investment classes to deliver superior risk-adjusted returns that beat inflation and grow your corpus. For example, 30-year old male investing ₹ 20,000 per month for 20 years in ICICI Pru Signature (ULIP Plan)# can get ₹ 65.39 Lakhs at 4% annual return or ₹ 1 crore at 8% annual return
- Tax Savings – Life insurance plans offer dual tax benefits^. The premiums paid offer tax deduction under Section 80C of the Income Tax Act. This means up to ₹ 1.5 lakh premium paid annually is deducted from your gross income, thus lowering your tax outgo. Separately, the maturity insurance plans may be entirely tax-free. This tax benefit^ is under Section 10(10D) of the Income Tax Act
- Buy Young, Save More – Life insurance plans give you the ability to lock in low premium rates while you’re young. If you buy the same policy when you are older, you will be paying a much higher premium compared to if you bought the same plan when you were younger. For example, in case of the term insurance plan ICICI Pru iProtect Smart, a 20-year old male buying a ₹ 1 crore term plan for 30 years coverage will have to pay ₹ 5955 annually. If they buy the same plan under the same conditions after 10 years i.e. at 30 years of age, they will pay ₹ 9009 and if they buy it another 10 years later i.e. at 40 years of age, annual premium will be ₹ 18,180.
How are life insurance plans suitable for your needs?
Life insurance fills financial gaps that exist in your lives. As an all-rounder product, life insurance can take care of your different financial needs at different stages of life. All you have to do is identify the need, and there is a suitable life insurance plan for you.
- Saving for children’s education – A majority of Indians fund their children’s education. On an average Indian parents spend over ₹ 12 lakh on children’s education. Thus, saving for a child’s education is one of the biggest priorities for a parent. Child insurance plans allow you to fulfil this financial need. Such policies, often in the form of a Unit Linked Insurance Plan, help grow your investments and help you secure the educational milestones of your children.
- Financial Protection in case of major illnesses/health issues – A majority of Indians spend around 70% of their income on medicines and health care. Down with a health issue such as major/critical illness, there is a high chance you will not be able to earn income during the treatment/recuperation period. But your family’s financial needs will remain even if you are sick. Life insurance plans can provide financial protection during major illnesses.
Let us understand with a simple example. A 35-year old IT professional buys ICICI Prudential Smart Health Cover with ICICI Pru iProtect Smart plan that has ₹ 10 lakh critical illness cover, for a term of 15 years. He pays an annual premium of ₹ 6961. After 7 years i.e. when he is a 42 year old, he suffers from a heart attack and had to undergo angioplasty. The policy pays him ₹ 5 lakh, while 50% of cover continues for other ailments that he might face later and premium is reduced by half. - Retirement planning – Retirement is supposed to be this beautiful time when you are free from work pressures and life is peaceful. It can be all those things and much more, if you have a pension/monthly income. Most of us work in private sector companies, and hence there is no pension benefit. This is why retirement becomes more of a worry than something to look forward to. Fortunately, life insurance provides retirement plans that allow you to earn a pension, keep your head high and live your life in your own terms. Retirement plans offer you and your spouse the benefit of receiving regular pension for life. If you start saving for retirement from an early age, saving a big retirement corpus is possible with a retirement plan.