Real-Life Impact Of Life Insurance

Despite life’s only constant reality, death still remains the most difficult and uncomfortable conversation in our society. We do not want to think of a situation that involves grief. However, it is important that we acknowledge it and think of ways to protect our family in our absence - more so if they are dependent on us. Because at the end of the day, only family is there to take care of each other.

Life Insurance is the protection you can gift your loved ones. How will it help them? Let’s find out, in this article.

Provides financial security

Some life insurance plans are designed specifically to offer financial protection to your dependents, i.e., those who depend on your income for their living. For instance, a term insurance plan pays a fixed sum of money to your family, if you pass away during the plan's tenure. This money can help cover your family's regular expenses, as well as long-term goals and dreams.

While some policies expire after a certain period of time, some life insurance plans are designed to provide lifelong coverage to you and your family.

For example, the standout benefit of a Whole Life plan is that it covers you for your entire life (till you are 99 to 100 years old). If you survive the policy term, the sum assured will be paid to you. And if you don’t, your family will receive the sum assured and stay financially secure.

If you, unfortunately, pass away during the policy term, your nominee receives a death benefit, i.e., the cover amount you have chosen. Your family can use this money for their everyday expenses (groceries, utilities, school fees, etc.) and long-term financial goals (children’s higher education and wedding etc.) without having to compromise on their lifestyle.

Note: This benefit is a constant across all life insurance plans.

For example, Reeta buys a Term Insurance cover of Rs. 40 lakhs for a duration of 35 years. She passes away in the 30th year. In this case, the insurer will pay Rs. 40 lakhs to her nominee.

Some life insurance policies pay you a guaranteed⁴ maturity benefit if you survive the policy period. So when the policy matures, you receive a sum of money. You can use this amount for your financial goals like buying a house, paying off debts, planning for retirement, etc.

For example, Virat purchases an Endowment Plan with a cover amount of Rs 45 lakhs. He chooses the policy duration to be 20 years and the payout option as a lump sum. If Virat survives the policy term, he will receive Rs. 45 lakhs all in one go - as the maturity benefit.

Note: The maturity benefit is not a constant across all life insurance policies. Term Insurance, for example, does not provide it.

Some life insurance policies also give you periodic payouts as an additional survival benefit. You receive these payouts when the premium payment period gets over.

The survival benefit may differ with different insurers. It may either be a percentage of the sum assured, or a separate amount determined by the insurer.

For example, Rahim buys a Money Back policy of Rs. 20 lakhs and chooses a policy term of 30 years. He goes for a 15-year limited pay option - so he will have to pay all the premiums in the next 15 years. And after his premium payment term is over, i.e., after 15 years, the insurer will pay him the survival benefit as determined under the policy schedule.

Some life insurance plans can be used to obtain a loan to meet any of your financial goals, whether they are long-term, like - starting a new business - or short-term, like - paying home loan instalments, etc.

Note: This option might not be available with all types of life insurance policies. For example, you cannot avail of a loan against a Term Insurance plan.

Some life insurance plans help generate a cash value that you can withdraw - as you go on paying the premiums. The more the premiums you pay, the more the cash value you get to avail.

You can use this cash value -

• To pay future premiums
• To borrow money against it
• As a secondary source of income in situations like - repaying outstanding loans, meeting post-retirement needs, etc.

Life Insurance plans also offer tax benefits³ under various sections of the Income Tax Act, 1961.

• Policy Premiums: Annual premiums are eligible for tax deductions under Section 80C of the Income Tax Act, 1961 - up to a limit of Rs. 1.5 lakhs.
• Payouts: The payouts you or your nominee will also be eligible for tax benefit under Section 10(10D) of the Income Tax Act, 1961, subject to satisfaction of conditions specified therein.

Every person’s life goals and dreams may be different, but the need for financial protection remains a constant. As important as it is to live a good life, it is equally important to leave one behind for your loved ones. The real-life impact of life insurance is undeniable. With the right kind of policy and the right sum assured, you can build a safe, secure future for people who feel a lot like home.