Why Is Life Insurance Important?

Even though death is very reliable, the issue of death continues to be a sensitive issue in India. Similarly, although it is an important part of life, life insurance is not something that people usually buy. No one wants to think about a problem involving one of these. However, if the thought of passing on your debts to dependents scares you, life insurance should be a priority.

According to the economic survey for 2021-2022, the Covid-19 pandemic caused the penetration of life insurance in India to be close to the global rate, rising from 2.82% in 2019 to 3.2% in 2020. the number of people who need to be paid. This is why life insurance is so important.

What is Life Insurance?

As the name suggests, life insurance is a contract between the policyholder and the insurance company in which the life of the policyholder is covered against any type of problem that may cause the unexpected death of the insured party. In other words, if the owner, unfortunately, dies during the policy, the insurance company must pay the pre-arranged amount to his survivors according to what was agreed between the owner and the insurer. So it can be a one-time payment, or annual or monthly payments.

Not only against death but with additional benefits, life insurance can also cover the representative from serious diseases such as heart disease and cancer if they are struck.

Determining Personal Life Benefit and Total Guaranteed Income

Although life insurance covers your family’s expenses in your absence, it is natural to think about the amount of the cover. The concept of human life value (HLV) is very important when choosing a fixed income. Contrary to popular belief, it’s not just about calculating the amount of money a person adds to a home. Rather, it is a statistical analysis of the costs and financial liabilities that a person must take care of throughout their life. Apart from this, factors like lifestyle changes, income and inflation are also taken into consideration before finalizing the right amount.

The guaranteed amount of your term cover depends on the stage or age at which you purchase the cover. For example, if you are under 40 years of age, you should choose a policy that gives you 20 times your annual income. Similarly, those above 40 should take a guaranteed amount of 10-15 percent of their annual income.

Alternatively, you can recalculate the cost based on the size of your family and your spending, and choose a cover that is 12-15 of your family’s annual spending. If you buy the plan online, aggregators have a HLV calculator section that will give you a clear picture by answering simple questions.

Term Insurance: The Cleanest Option for Life Insurance

Although the concept of life insurance is simple – to provide emergency coverage and take care of the financial needs of the family after the death of the owner – these policies come in different forms that suit different needs.

Term Life Insurance

Term insurance is the best form of life insurance. With such a plan, in the event of an accident to the deceased owner, the nominee (usually the spouse) receives the death benefit, either in bulk or in installments. A plastic holder decides how long he will live and how much money is to be paid to his nominees upon his death. This helps the family of the deceased to maintain a modern lifestyle and achieve important life goals even after the death of their income earning relative. All the policy holder has to do is pay the premium regularly.

On the other hand, if the investor survives the term of the policy, he does not receive any benefit because it is a non-cash risk cover. These plans are popular because they are the cheapest life insurance plans available in the market. In addition, they offer great support at low prices.

Term Insurance Riders

Riders list the extras or benefits that one can choose from in the policy at an additional cost. Some of the popular riders in term insurance are –

  • Accidental passenger disability benefit – As the name suggests, this rider is useful if the policyholder survives an accident, even if they have a life-changing disability. This rider supports the family’s finances without a stable source of income.
  • A serious illness rider – Illnesses such as cancer or heart disease can destroy a family’s finances in a matter of months. Diseases like this are on the rise, it is wise to choose this rider that not only pays for your daily expenses but also opens up the opportunity to get good treatment without worrying about money.
  • Removal of passenger premium – In cases where the policy holder is unable to maintain the policy due to disability due to an accident, the rider helps to withdraw future payments and maintain the policy.

Plans for the New Era

The insurance sector is constantly evolving to meet the needs of every type of consumer. As the number of insurance coverage increases, there are new age plans launched by insurers to cover more people and reduce the coverage gap in India. Here are two such plans that have been released recently:

  • Independent Homemakers’ Term Plan

    A person’s financial worth is calculated only if they bring money to the table. However, this changed with the historic decision of the Supreme Court last year stating that the idea of ​​house builders not increasing investment is wrong and should be defeated.

This makes the introduction of independent plans for home builders earlier this year a major change in the insurance landscape. In the past, home builders could be supported through the plan of the earning spouse, but now they can choose the plan and pay dependents in their absence.

  • Saral Jeevan Bima

    Another segment of consumers that is often missed from the term insurance radar is the low income group. The decline in insurance coverage in this category can be attributed to potential. However, as we have seen in the last two years, an unexpected disaster can happen to anyone, regardless of their financial situation. To address this, the Insurance Regulatory and Development Authority (IRDAI) issued guidelines in 2020 to come up with a long-term policy called Saral Jeevan Bima.

Depending on need and affordability, the guaranteed amount ranges from INR 5 lakh to INR 25 lakh. One can improve safety by designating passengers as disabled passengers or accidental passengers.

Why Life Insurance Is the Most Important Part of Your Financial Planning

Protecting Your Family

The first thing that life insurance does is free you from worrying about what will happen to your family in your absence. Life cover does this by ensuring that there is full coverage, even if you don’t have it.

Essentially, life insurance gives your loved ones the power of self-reliance and independence. This means that your family does not have to compromise with their lifestyle. The money they receive as part of life insurance can be used for monthly expenses or important life goals, such as children’s education or marriage.

Protects Property

Everyone wants to provide the best life for their families. Even if it means taking out a loan, so be it. If everything goes according to plan, you can repay the loan on time. However, what if things take a turn for the worse and something unfortunate happens? It becomes a matter of concern if you are not around to pay those EMIs. Then the good can become the debt that has big debts in the family. However, with life insurance with the right cover, you don’t have to worry about this because your property will be protected. All you have to do is consider your debts by choosing the sum assured and if something happens to you, the money your family receives can be used to repay the loan.

Builds Wealth

Several life insurance options come with an investment component that allows you to build retirement savings, or even save for other life goals. In fact, life insurance has been the preferred instrument of Indians for many years. With advanced and refined products like ULIPs now in the market, one can invest according to their risk and risk profile and save for their future, as well as their family’s future.

Protects against serious diseases

The world we live in is changing. Although our lives are fast-paced, we spend most of our time looking at things, which makes our lives sedentary. This has led to an increase in disease in life. Most life insurance plans these days come with a critical illness cover. So if the policyholder chooses this and if he is diagnosed with the specified critical illness, the insurance company must pay the full amount to the policyholder. These payments can be used for medical expenses, or for any other purpose that the policy owner deems appropriate.

Saves Taxes

A life insurance plan also offers tax benefits. The amount you pay on this plan is eligible for tax deduction up to Rs 1.5 lakh per year under Section 80C of the Income Tax Act. Also, any amount received on the death of the holder is exempt from tax under Section 10 (10D) of the Income Tax Act.

Down Under

Life insurance is the foundation of any good financial plan. With the right plan and sufficient guaranteed funds, a person can plan and build their family’s future without worrying about whether they will be there in person to witness it or not. The death, especially of the breadwinner in the family, can set their fortunes back significantly if they do not receive adequate treatment. So one should avoid this mistake and get life cover as soon as possible. Also, because premiums increase with age, it’s best to get life insurance sooner rather than later.