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Can Future Needs Be Met with Life Insurance in India?
In terms of life insurance, making up for the danger to life is the fundamental goal. In other words, make sure your family has a safety net in place while you are away. But did you know that certain insurance policies may also aid in the achievement of personal objectives?
Term life insurance offers life insurance. The nominees get the amount promised in the case of the insured’s death. Plans for savings-linked insurance, however, provide both life insurance and a set sum at the conclusion of the policy period. See how they function first:
1) Endowment Policy
You are given a Guaranteed Maturity Benefit through an endowment policy. Additionally, in the event of the policyholder’s death, the nominee will get the SA, protecting your family’s finances. A death benefit and a survival benefit are thus present.
The insurance coverage is paid for using a part of the payment; the remaining sum is placed in debt instruments and other low-risk investments. The survivor benefit is paid at maturity using the investment portion’s earnings.
There are several policies that let you can add riders, such as Critical Illness, Total Disability, Accidental Death Benefit, etc. Some plans additionally provide premium exemptions in the event of a serious sickness or complete incapacity. Remember to choose riders from the built-in coverage according to your requirements.
Some endowment policies are offered as “participating plans,” which let you share in the insurance company’s earnings in order to qualify for incentives and maybe build up a bigger corpus.
In contrast to the insurance term, you may choose a lesser premium-paying term. You have the option to pay the premiums on a monthly, biannual, yearly, or even lump sum basis, giving you more freedom.
Endowment insurance might be a good option if you want to reduce risk and develop your corpus in a reasonably risk-free way since it provides the following advantages:
compensates for life risks and safeguards the financial interests of your family in the event of an unexpected occurrence.
helps you establish a corpus for your future requirements by encouraging regular, secure savings.
If money is needed for an emergency before the policy term is over, there is an option to take out a personal loan based on the policy’s surrender value (middle of the policy period).
2) Money-back Policy
A variant of endowment plans called money-back plans provides life insurance as well as returns. Additionally, it provides the choice of adding passengers and flexible alternatives for premium payment. Money-back plans are appropriate for risk-averse investors searching for secure investments since they also invest in debt and money market securities.
A money-back plan, as opposed to an endowment plan, enables you to generate some consistent income during the course of the policy. You may choose to cover your liquidity requirements during the policy’s term by receiving a set sum (shown as a percentage of the Sum Assured) at certain intervals. You may schedule the payments from the insurance to coincide with your desired time frame since the money is paid out on a monthly basis.
After 4-5 years (referred to as the pay-out structure), a money-back payout often takes place, and it occurs as a predetermined proportion (20-25%, depending on the policy) of the Sum Assured (SA).
At the conclusion of the policy period, the remaining SA and bonus (Revision Bonus, Final Additional Bonus, and Additional Loyalty Bonus), if any, are paid. Additionally, regardless of whether the survival benefit has previously been paid, the whole SA is paid in the event of the Life Assured’s death.
3 Unit-linked Insurance Policy
Unit-linked insurance plans, often known as ULIPs, are insurance-cumulative investments that provide life insurance coverage and market-linked returns. A fraction of the premiums are used for insurance, while the majority is invested in market-linked products. In the same way that money is pooled in mutual funds, units are allocated for the investment at a certain net asset value (NAV).
The investment is made at the appropriate NAV, and units are assigned to you. You may choose to invest in an equity-oriented, debt-oriented, or hybrid fund, depending on your objectives.
Your money is invested in equities and equity-related products at the fund manager’s discretion when you choose an equity fund for your ULIP. Equity funds are a good choice if your aim is wealth growth, you have a high-risk tolerance, and you want to achieve long-term financial objectives. While a hybrid fund allocation option might be explored if you are a moderate risk-taker who wishes to balance the risk-reward between equity and debt, with around 50–55% of the investment amount going into stocks and the rest (45–50%) going into debt and money market instruments.
A debt-oriented fund that invests in bonds, debentures, and other debt and money market instruments may be beneficial for you if you are cautious, have limited tolerance for risk, and want to address short-term financial objectives. Yes, it would be suitable.
4) Child Insurance Plan
These insurance policies mainly address the need to safeguard a child’s financial future, particularly by budgeting for their future higher education and wedding costs while avoiding possible inflation. Endowment plans or ULIPs may be used for children’s insurance. Depending on your investing goals, risk tolerance, and desired time period, choose your choice.
A lump sum payment known as the maturity benefit is given to the insured at the conclusion of the policy’s term. Certain kinds of child insurance policies provide partial withdrawals (under certain restrictions) and loans against the policy’s surrender value.
Future premiums are waived in the event of a parent’s passing, and the insurance is still in effect in the child’s name.
The Advantages of Child Insurance Policies
You are eligible for tax advantages, such as a deduction of up to Rs. 1.50 lakh, for the premium paid for a savings-linked insurance plan under section 80C of the Income Tax Act of 1961.
Additionally, under section 10(10D) of the Income Tax Act, the amount you receive at maturity will be tax-free. For all ULIPs acquired on or after February 1, 2021, the Union Budget 2021 has been revised to include maturity revenues from ULIPs with an annual premium exceeding Rs 2.50 lakh.
Certain savings-linked insurance policies or plans may be taken into consideration to supplement tax preparation and investment planning.