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Roles of Life Insurance

  • 16th Nov 2016
  • 498
Roles of Life Insurance

3 roles that define the importance of life insurance in your life

Risks and uncertainties are part of life’s great adventure—accident, illness, theft, natural disaster - anything can happen to anyone at any time. How can you protect yourself or your loved ones in case you are affected by any of these uncertainties?Life insurance can act as a buffer in more than one way, between the financial distress that life’s uncertainties may cause and your loved ones.

Role 1: Life insurance as an “investment”.

While most people recognise the risk hedging and tax saving potential of insurance, many are not aware of its advantages as an investment option as well. Insurance products yield more compared to regular investment options, and this is besides the added incentives or bonuses offered by insurers. You cannot compare an insurance product with other investment schemes for the simple reason that it offers financial protection from risks, something that is missing in non-insurance products. In fact, the premium you pay for an insurance policy is an investment against risk. Thus, before comparing with other schemes, you must accept that a part of the total amount invested in life insurance goes towards providing for the risk cover, while the rest is used for savings. In life insurance, unlike non-life products, you get maturity benefits on survival at the end of the term, like:

If you take a life insurance policy for 20 years and survive the term, a part of theamount invested as premium in the policy maycome back to you with added returns.

In the unfortunate event of death within the tenure of the policy, the family of the deceased will receive the sum assured. Thus, insurance is a unique investment avenue that delivers sound returns in addition to protection.

Role 2: Life insurance as “Risk cover”

First and foremost, insurance is about risk cover and protection - financial protection, to be more precise - to help outlast life’s unpredictable losses. Designed to safeguard against losses suffered on account of an unforeseen event like death, insurance provides you with that unique sense of security that no other form of investment provides. By buying life insurance, you buy peace of mind and are prepared to face any financial demand that would hit the family in case of an untimely demise. Here is how it works:

With the entry of private sector players in insurance, you have a wide range of products and services to choose from. Further, many of these can be further customised to fit individual/group specific needs. Considering the amount you have to pay now, it’s worth buying some extra sleep.

Insurance firms collect contributions from many people who face the same risk

A loss claim is paid out of the total premium collected by the insurance companies, who act as trustees to the monies

Insurance also provides a safeguard in the case of accidents or a drop in income after retirement. An insurance policy can lend timely support to the family in case of accident etc

It also comes as a great help when you retire

With the entry of private sector players in insurance, you have a wide range of products and services to choose from. Further, many of these can be further customised to fit individual/group specific needs. Considering the amount you have to pay now, it’s worth buying some extra sleep.

Role 3: Life insurance as “Tax planning”.

Insurance serves as an excellent tax saving mechanism too. The Government of India has offered tax incentives to life insurance products in order to facilitate the flow of funds into productive assets.

Buying a life insurance plan entitles you tax benefits on:

Your premiums under Section 80C.

Maturity or death claim proceeds under Section 10 (10D).

Disclaimer: Tax benefits under the policy will be as per the prevailing income tax laws and are subject to change in the tax laws. You are advised to consult your tax adviser for details.

While one may not be able to avoid getting caught in the effects of life’s workings, life insurance acts like a three-headed spear, which cuts through the financial doubt, dilemma and distress that any untoward incident may cause you and your family.

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