A life insurance policy allows you to provide the right security for your family in case of your unfortunate absence. As you are the sole bread earner of the family, an untimely demise can cause them severe financial distress. While no amount of money can ever replace a person, life insurance gives you the peace of mind, knowing that your family will have the right financial support to continue living in case of your absence.
Life insurance is a long-term financial instrument that works as a financial backbone to fulfill your family members’ financial needs at important milestones even in your absence. Most importantly, it allows the family to pay off any mortgage, liabilities, medical expenses or loans, so that these liabilities don’t cause an additional burden to them. It is therefore important, to choose an insurance policy that allows your family to continue the same kind of lifestyle and cherish the wonderful memories that come along.
6 Steps to a Wholesome Protection Package
- Self-analysis –What is your current family size and financial situation and where do you see yourself in the future? Are you the sole breadwinner in your family? Most importantly, analyse of your current savings and how much cover you need.
- Evaluate Options – Depending on your life stage, you can evaluate life insurance policies with different coverage plans. For the basic need of family protection, a term plan can be considered whereas for a specific type of need, you can choose from health, savings, child and other plan types.
- Research – Once you have determined the amount of cover and the type of life insurance you need, you need to have complete information about the chosen type of life insurance plan, understand the benefits and conditions of the plan.
- Calculate Premium – Once you have identified the plan you need, you can calculate the premium payable on the plan, depending on the coverage you require.
- Read the offer document – This is the most critical stage of buying any policy; it is always advisable to have a complete understanding of the offer documents with your insurance agent, before signing anything. Do not hesitate to ask your agent any policy related questions.
- Final Confirmation – Life insurance is for life. So conduct an extensive analysis and have complete confidence in the plan that you are going to buy. Once the plan is purchased and later on, there is any disagreement relating to the policy, you can still back off by returning the Policy Document to the Company within the Free Look period.
More than providing peace of mind your family and yourself, life insurance can be one of the best investment decisions you have ever made. With stringent regulatory conditions to safeguard policyholders, traditional life insurance policies carry minimum investment risk and provide long-term insurance benefits.
Most life insurance policies include retirement income on maturity. Another advantage of life insurance is that the coverage amount can be increased over time. So, while presently, you can afford only a low insurance premium with your current salary, over time with increasing income through promotions or new income sources, you can increase your insurance cover by paying slightly higher premiums and provide a better life cover for your family even when you are not around.
While choosing a life insurance policy, it is generally advisable to look at various products that different organizations provide. Many insurance companies offer an array of insurance plans that best suit the needs of the entire family.
It is always better to invest your hard earned savings which will provide you with long-term benefits than to seek short-term benefits from high-risk investment ventures. Whether you have just started your career, are recently married or blessed with a family, securing adequate life insurance can prove to be the best investment decision you ever made.
5 Retirement Income Planning Tips
- Envision your Lifestyle –When you think about retirement, how do you visualize your life after you retire? Understand your lifestyle requirements in order to plan your retirement income as part of your life insurance.
- Evaluate the Economy – With increasing prices, it is important to evaluate the value of every rupee you will save with the hope of sustaining your current lifestyle post-retirement. It is therefore important to have realistic expectations before planning to invest in a retirement plan.
- Health Implications – As you get older, your health concerns increase. Your retirement income should therefore be able to take care of any medical emergencies to ensure that your health never takes a backseat in your life.
- Different Income Resources – Life insurance should not be your only source of income. Consider investing in other investment avenues such as Fixed Deposits (FDs), Public Provided Fund (PPF), National Savings Certificate (NSC) etc. that secure your principal investment along with ensuring safer returns that enable you to lead a comfortable life post retirement.
- Always Plan for more Years – As the quality and standard of life increases along with medical advancements, it is always recommended to plan ahead, at least 5-7 years more than your life expectancy estimates that you may have made.
Life Insurance policies give you an additional advantage of tax benefit. As your income increases, the tax bracket also widens. The most apt method to save your hard earned rupee is through investment in insurance policies.
With most insurance policies, the premium you pay is eligible for tax benefits. Under Existing Income Tax Laws, contribution towards life insurance policy is allowed as deduction in income, thereby decreasing tax liability. It means that you not only provide financial security for your loved ones in the unfortunate event of your demise, but also reap the benefits of additional income from tax savings through premium contribution in unit linked life insurance policies.
Any profit earned from Unit linked life insurance schemes also provides tax benefits to the payee. Another advantage of life insurance is that the lump sum benefit payable on death is tax free.
Life insurance is therefore your greatest ally to help you save your hard earned money from the burden of tax.
4 tax Benefits through Life Insurance
- For Individuals and HUF –An individual or HUF paying life insurance premium can avail deductions on taxable income up to Rs. 100,000 under existing income tax laws subject to applicable conditions.
- On payment of any bonus – Any amount of insurance benefit received as a lump sum payment from life insurance policy is considered as a non-taxable amount under existing income tax laws subject to applicable conditions.
- Premium payment on behalf of spouse – Income Tax deduction is also available on life insurance premiums paid on behalf of your spouse.
- On maturity of policy – Life insurance proceeds are not taxable for the deceased’s family.
Income Tax benefits under Income Tax Laws are subject to amendments and interpretation from time to time. Kindly consult a tax expert. Conditions apply.