LIFE INSURANCE
Life insurance is a policy or cover that allows the policyholders to ensure financial independence for their family members after death. Assume you are the sole provider for your family, supporting your spouse and children.
Your death would financially devastate the entire family in such an event. Life insurance policies prevent this from happening by providing financial assistance to your family in the event of your death.
Life Insurance Policy Types
There are primarily seven different types of insurance policies when it comes to life insurance. They are as follows:
Term Plan - A term plan's death benefit is only available for a set period of time, such as 40 years from the date of policy purchase.
Endowment Plan - Endowment plans are life insurance policies in which a portion of your premiums are applied to the death benefit, and the remainder is invested by the insurance company. Endowment policies provide assistance in the form of maturity benefits, death benefits, and periodic bonuses.
Unit Linked Insurance Plans, or ULIPs, are similar to endowment plans in that a portion of your insurance premiums are invested in mutual funds, while the remainder is used to pay the death benefit.
Whole Life Insurance - As the name implies, such policies provide life insurance coverage for an individual's entire life, rather than just a set period of time. Some insurers may limit the term of whole life insurance to 100 years.
Child's Plan - An investment and insurance policy that provides financial assistance to your children for the rest of their lives. Following the death of parents, the death benefit is available as a lump-sum payment.
Money-Back Policies - These policies pay out a certain percentage of the plan's sum assured at regular intervals. This is referred to as a survival benefit.
Retirement plans, also known as pension plans, are a combination of investment and insurance. A portion of the premiums is used to build the policyholder's retirement corpus. This is available as a lump sum or monthly payment after the policyholder retires.
Life Insurance Advantages
If you have a life insurance policy, you can take advantage of the following benefits.
Tax Breaks - If you pay life insurance premiums, you are eligible for tax breaks under Sections 80(C) and 10(10D) of the Income Tax Act in India. Thus, you can save a significant amount of money in taxes by purchasing a life insurance policy.
Encourages the Habit of Saving - Because you must pay policy premiums, purchasing such an insurance policy promotes the habit of saving money.
Secures Your Family's Financial Future - The policy ensures your family's financial independence even after death.
Aids in Retirement Planning - Certain life insurance policies can also be used as investment vehicles.