“A policy of life insurance is the cheapest and safest mode of making a certain provision for one’s family” – Benjamin Franklin
Life insurance is a valuable tool for reducing the financial risk arising from unfortunate events like death of the breadwinner of the family. India ranks as one of the most under-penetrated insurance market in the world with the insurance penetration in the country being just 3.7 percent of the gross domestic product (GDP) as against the world average which is 6.31 percent.
Here are few important reasons why it is important to buy adequate life insurance:
Creating a financial safety net to your loved ones
Creating a financial safety net for your loved ones is one of the most important and primary reasons for purchasing life insurance. In the event of a death of the sole breadwinner the family, there is also a loss of income which means the family will have compromise even on their basic needs. As a result they will be forced to use their limited savings or even sell their assets like property or jewellery to make their ends meet.
Life insurance can not only make up for the lost income but also ensure that family’s lifestyle can continue like before.
Covers your loans and other liabilities
If you have any outstanding loans in the form of vehicle, housing, business or personal loan the burden of the same will fall your family members in your absence. Apart from loss of income, this sudden burden of loan will be double whammy for your family who may be reeling under both emotional and financial stress. Even if your loved ones have some other source of income, paying off additional loans may put a serious strain on them.
To avoid such situations, adequate life insurance is important so that the family can not only settle the debt but also live without depending on others for money.
Ensures peace of mind
Sickness, accidents and death are unpredictable. Money received from life insurance can never replace the loss of a person but it can ensure that your family’s financial future is secure. Hence adequate life insurance is a must for all those who have dependents.
However, the benefits offered by life insurance does not just end there. There are some other benefits of life insurance too such as:
Can be valuable tool for regular savings
A long term regular premium life insurance policy ensures disciplined saving in the form of premium payments at regular intervals thus making it a valuable tool for regular savings. Additionally the cash value component of the policy in case endowment and whole life policy ensures adequate availability of liquidity in the form of quick loans.
Helps you in tax-saving too
Under Section 80C of the Income Tax Act 1961, the premium paid towards an insurance policy is eligible for a maximum tax benefit of Rs 1.5 lakh.
Further under Section 10(10D) of the Income Tax Act 1961, life insurance offers tax-free pay-outs on maturity or claim.
Can fund your retirement goals
While life insurance can ensure financial protection for family against unfortunate events like death during the policy term, if nothing unfortunate happens, the proceeds of the policy on maturity can be useful for your retirement goals.
– Written and contributed by Pradeep Sukumaran.
