Why is Life Insurance so important?
Life insurance is usually taken by the earning member(s) of the family to ensure that in case of their death, and hence their source of income ceasing to exist, the dependent family members would have a lump-sum amount to fall back on. So by paying a small amount every year the earning member of the family can ensure that the future of their loved ones is absolutely secure from a financial point of view. So in the event of death of an insured person, the nominee of the policy would receive an amount called the sum assured which can then be used effectively to plan for their future.
Life insurance is absolutely critical for everyone irrespective of the amount of income you currently earn, unless you have saved enough to ensure that your family can comfortably live with the savings alone – not everyone can manage to do this even with high salary and income levels. Imagine living in a great house you have taken on loan and your family not being able to live in it, just because they do not have the income to keep paying the monthly EMIs of the home loan!
Direct Benefits of taking a Life Insurance Plan
Provides for Loss of Income - In case of the policy holder’s death, the dependents will suddenly be left without a constant source of income. The future requirements of the dependent members too would be hugely compromised with them having to settle for options which are not as good as you would have wanted if you were around. With a good amount of life insurance cover you can ensure that your family is not left high and dry along with emotional trauma of your absence. It is one of the most important reasons for taking a life insurance policy.
Protects your Assets - In your absence, your family should not have to resort to selling the assets which you accumulated with your hard work. In the event that there is no source of income your family would have to sell assets like land, home, vehicle, jewellery which you had so lovingly purchased. The comforts you wanted to provide to your family should not be taken away from them to make do for their day-to-day living. In case you are adequately ensured, all your loans and your family’s financial future would be well taken care of.
Financial Planning - Life insurance policies can also be taken for sound financial planning depending on your requirements and risk appetite. For the conservative investors there are a host of traditional policies like money back insurance policies and endowment plans to provide income to you at regular intervals of time. The more market friendly investors can choose ULIPs (Unit Linked Insurance Plans) to plan their future. There is a higher element of risk involved with ULIPs but the gains too can potentially be on the higher side. Ideally each individual should assess their requirements and choose their investment options and time horizon.
Tax Savings - One of the key reasons, people buy life insurance is to avail tax benefits under section 80C up to the limit of Rs. 1,00,000 annually. Money paid as premium of Life Insurance policies is exempted from income tax and the proceeds from a life insurance policy on maturity also get tax exemption under section 10(10D) of the income tax.