Life insurance plans are a necessity because no one wants to imagine a future where their loved ones are waived off financial support.
Just like you plan your meals, groceries, etc. beforehand so that you can serve meals to your family on time, your need to plan your finances in advance as well. There are some unforeseen incidents that need prior planning, even though they are uncertain. One such plan is the financial arrangement for your loved ones for a future where you may not be there for them. Life insurance plans are a necessity because no one wants to imagine a future where their loved ones are waived off financial support. The emotional connection cannot be compensated, but at least the financial woes can be taken care of by opting for adequate life insurance coverage. This is the first step towards prudent financial planning and hence being aware of the nature and scope of life insurance is essential.
After the onset of covid-19, there was a steady increase in insurance penetration in India, which pushed from 2.82% in the year 2019 to 3.2% in the year after1. While the figures may seem less, they equal the global average. This increase can also be related to the fact that more and more people are realising the importance of prioritising their finances above all other aspects. Securing the future of their loved ones is one of the key objectives for most millennials.
What is a Life Insurance Plan?
A life insurance plan guarantees the lump sum payout of the death benefit to the family of the insured in case he/she passes away during the policy tenure. In order to provide this financial security, the insured would need to pay a premium to the insurance company for a specific timeframe, which could be for the entire policy tenure or for a part of the tenure.
Nature of Life Insurance:
There are different types of life insurance plans that you can choose from. While some offer only life cover, others can offer a savings element as well, which is disbursed as a maturity benefit. So, to understand the exact nature of life insurance, you need to understand the various types as each type varies from the other.
A). Term Insurance Plans
A term plan is purchased for a fixed policy tenure (that can go up to 80 years). Under a pure protection term plan, the policyholder purchases only life cover. In case of the death of the insured, a death benefit is payable. In case the individual survives the policy, no benefit is paid out.
B). Term Return Of Premium Plans (TROP)
A term return of premium plan, as the name suggests, is a savings cum life cover plan. In case the policyholder expires during the tenure, the nominee receives a death benefit. However, if the policyholder survives the tenure, he/she receives all the premiums paid that have been paid so far.
C). Money Back Plans
A money-back insurance plan ensures you get a regular income along with guaranteed life cover. You can choose to get the income at regular intervals or specific stages of life by paying a regular premium. Apart from this, the policyholder may also get a maturity benefit if he/ she survives the policy tenure. The nominee receives the death benefit in case the insured individual dies during the tenure.
D). Child Insurance Plans
A child insurance plan comes with a savings unit that lets you plan your child’s future financial needs. The policyholder (parents) gets a life cover, and one part of the premium is saved for the child’s future financial goals, like a wedding or higher education.
E). Unit-Linked Insurance Plans (ULIP)
If you are looking for a life cover that also lets you invest, ULIPs are an ideal choice. One part of the premium gives you life cover, while the other part is invested in market-linked investment, which could be in the equity or the debt market or a combination of the two based on your choice. However, ULIPs have a lock-in period of 5 years.
F). Endowment Plans
An endowment plan gives both life cover and savings opportunities. One part of the premium is saved for a lump sum maturity benefit, and the other is invested for a life cover. The insured individual receives the maturity benefit if he/she survives the tenure. If not, the family/nominee receives the death benefit of the plan.
G). Whole Life Policy
A whole life policy is a life insurance plan that covers an insured till the time they turn 99/100 years. In case the insured passes away during the tenure, the family behind receives a death benefit. Because they have long-term/whole life cover, these are known as whole life cover.
H). Retirement Plans
A retirement plan, as the name suggests, is an ideal one for individuals planning their retirement provides. It offers a life insurance cover and pays a lump sum death benefit to the nominee in case the insured passes away. Apart from this, one part of the premium is also used to provide a regular source of income as an annuity that may be immediate or deferred.
I). Group Life Insurance Plans
Most popular in the employment sector, a group life insurance plan covers all the members of a group. All the group members collectively pay the premium and receive life cover under one single plan.
Benefits and scope of life insurance:
The death of a family member can be devastating, and if the deceased was an earning member, the financial burden on the family could be ruinous. A life insurance plan, therefore, is nothing less than a basic necessity for every household. The benefits of a life insurance policy are far too many. The top 5 benefits are listed below to define the overall scope of life insurance:
A). Secure your family’s goals
As the primary earner of the family, plenty of responsibilities lie on your shoulders. If something unfortunate happens to you, the death benefit received by your family will help them sustain a comfortable lifestyle. Thus, opting for adequate life insurance coverage, choosing a suitable sum assured is essential for the family’s security.
B). Protect the children’s future
You work hard to provide the best of everything for your children. A life insurance plan allows you to secure the dreams and aspirations of your child even if you are no longer around. Most child insurance plans come with a premium waiver benefit. So, if you happen to die within the policy tenure, i.e. before your child completes his/her education, the insurer would pay for the remaining premiums and the policy would continue as per original schedule and the maturity benefits would be provided to the child as defined. This would help to fund the child’s education without any financial woes.
C). Takes care of your liabilities
The various loans and liabilities that you take to make your life comfortable may become burdensome for your family in your absence. The sum assured would be beneficial in repaying them. Thus, most high value loans, such as home loans, are usually coupled with loan protection insurance plans.
D). Gear up for the future
With an annuity-based plan or other savings schemes, you can enjoy the dual benefits of insurance as well as wealth creation. Thus, insurance could be easily combined with the family’s financial plan.
E). Tax benefits
Yet another major benefit that you can avail of is tax saving. You can get tax benefits of up to INR 1.5 lakhs on the premium that you pay towards the insurance policy as per Section 80C of the Income Tax Act. Also, the death/ maturity benefits received by your nominee would be tax-free under Section 10(10D).
Expect the unexpected and plan for unforeseen events! Life insurance can be their much-needed helping hand in the absence of the bread earner of the family. So, get yourself insured today if you haven’t done so far.