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What is life insurance?

As the name suggests, life insurance covers your life. In case of policyholder’s premature demise within the policy term, the insurance company pays the sum assured to the nominee. One of the most essential financial instruments, life insurance helps your family to stay financially independent, square off liabilities taken in the form of loans, maintain the lifestyle provided, and keep essential goals on track.

Types of life insurance

Term insurance is the simplest form of life insurance available in the market. A pure protection plan, a term insurance offers a large coverage at an affordable premium. A 30-year-old non-smoking male can opt for a term plan offering a cover of Rs.1 crore for a policy term of 30 years by paying a nominal premium of a little over Rs.8,000 per annum. Term plan gives you the flexibility to choose a sum assured 15-20 times of your annual income.
Weaving insurance and investment in a single product, endowment plans offer life cover as well as build a corpus for essential life goals. A certain portion of the premium goes towards the sum assured, while the other portion is invested in low-risk avenues. In case of your demise during the policy term, your nominee gets the sum assured. In case you survive the policy term, you get the sum assured as maturity amount along with the accumulated bonuses. Thus, endowment plans fullfil the dual needs of insurance and investment.
Money back policies are similar to endowment plans, except that they pay a certain amount at pre-defined intervals during the policy term. For instance, a money-back policy for a term of 15 years, may pay a certain amount at the end of 5th and 10th year of the policy term. On policy maturity, it pays the maturity benefits along with the accumulated bonuses.
Combining insurance and investment in a single product, ULIPs offer life protection as well as the opportunity for capital appreciation by investing in various funds of varying degrees of risk. Just like endowment policies, in ULIPs a certain portion of the premium goes in providing life cover, while the other portion is invested in markets to earn returns.
As the name suggests, a whole life insurance offers you coverage for your entire life. The policy term for whole life insurance plans extend up to 100 years and as long as the premiums are paid, the benefits of the policy are kept intact. If you, the policyholder, survive the policy term, you get maturity benefits. If you want to remain insured throughout your life, whole life insurance plans are a good choice to make.

What are the different types of life insurance?

• You need life insurance for a specific period of time. Term life insurance enables you to match the length of the term policy to the length of the need. For example, if you have young children and want to ensure that there will be funds to pay for their college education, you might buy 20-year term life insurance. Or if you want the insurance to repay a debt that will be paid off in a specified time period, buy a term policy for that period.

• You need a large amount of life insurance, but have a limited budget. In general, this type of insurance pays only if you die during the term of the policy, so the rate per thousand of death benefit is lower than for permanent forms of life insurance. If you are still alive at the end of the term, coverage stops unless the policy is renewed or a new one bought. Unlike permanent insurance, you will not typically build equity in the form of cash savings.

How Life And Health Insurance Help You Save Tax While Securing Your Family’s Future

With the tax season around the corner, you must be looking at ways to reduce your tax outgo. Well, you don’t have to look very far. Insurance helps you save your tax liability by allowing deductions from your taxable income. Both life and health insurance policies give you tax benefits. Do you know how? Let’s find out –

In case of life insurance, the premiums you pay and the benefits you receive are both tax-free under different sections of the Income Tax Act. Let’s check the life insurance tax benefits –

For premiums paid

Section 80C – Premiums paid for a life insurance policy, whether it is traditional or ULIP qualifies for tax exemption under this section. The maximum allowable deduction is ₹1.5 lakhs and to claim this deduction your premiums should not be more than 10% of your sum assured. So, if you policy’s sum assured is ₹10 lakhs, the premium should be up to ₹1 lakh to be eligible for 80c deduction from your taxable income.

Section 80CCC – This section deals specifically with the premium paid for a pension or annuity plan. If you buy a pension plan from a life insurance company, the premium paid is exempted under this section. The maximum limit is ₹1.5 lakhs with effect from Assessment Year 2016-17 and it includes the limit under Section 80C. Thus, under Sections of 80C and 80CCC combined, the maximum available deduction is limited to ₹1.5 lakhs.

MAIN REASONS WHY ONE MUST CONSIDER INVESTING IN A LIFE INSURANCE PLAN

As I grew older, got married, started a family, and began a business, I realized that life insurance was indispensable and fundamental to a sound financial plan. Over the years, life insurance has given me peace of mind knowing that money would be available to protect my family and estate in a number of ways, including:

Let's Simplify

The cost of a funeral and burial can easily run into the tens of thousands of dollars, and I don’t want my wife, parents, or children to suffer financially in addition to emotionally at my death.
Like most fathers, I want to be sure my kids are well taken care of and can afford a quality college education. For this reason, additional coverage is absolutely essential while my kids are still at home.
If my wife had passed away while the kids were young, I would’ve needed to replace her income, which was essential to our lifestyle. I also would’ve needed to hire help for domestic tasks we’d shared like cleaning the house, laundry, cooking, helping with schoolwork, and carting kids to doctor’s visits.
In addition to providing income to cover everyday living expenses, my family would need insurance to cover debts like the mortgage so they wouldn’t have to sell the house to stay solvent.
Since I’m involved in a business partnership, I need insurance on my partner’s life. The reason is so if he dies, I will have enough cash to buy his interest from his heirs and pay his share of the company’s obligations without having to sell the company itself. He has the same needs (due to the risk that I might die), and he simultaneously purchased insurance on my life.
Estate taxes can be steep, so having insurance in place to pay them is essential to avoid jeopardizing assets or funds built for retirement. Use of insurance for this purpose is most common in large estates, and uses permanent (rather than term) insurance to ensure that coverage remains until the end of life.

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About Decipher

Mr. Yogesh Thaker is a professional Life insurance & Health Insurance Consultant associated with India's #1 Life Insurer i.e. LIC OF INDIA since 2000 having an experience of 20 years.

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