Is Life Insurance Policy Really Necessary in India?

Life insurance policy is a type of insurance which is intended to provide a form of assistance financially in a number of unpleasant circumstances. Although, there are various arguments against the idea of getting a life insurance especially in a country like India where people may have a different perception of money, but it is prudent to understand that there is a critical importance of having a life insurance policy. Before going towards the decision making process for purchasing Life insurance policy, the candidate or the buyer should acquaint himself with the insurance companies in India and the products offered in the market. It is important to consider various factors why life insurance policies are needed in India.

1. Financial Protection for Your Loved Ones

When penetrating into the market with the aim to buy a life insurance policy to cater for your family, one of the key factors/stakes that you should consider is how to ensure that your family is financially secure, especially if you are the sole bread winner. The death benefit, the face amount, or, in insurance parlance, the amount that will be paid as the life insurance claim payout, is the amount of money your loved ones will get in the unenviable position whereby death has claimed your life. It is used for daily purchases, to clear the accounts of those who have faded, for school fees of children, for other projects which may be in future among others.

2. Dealing with Outstanding Debts

It represents a fact that a number of people in the Indian population can be indebted in personal loans, auto loans as well as housing loans. If you do not have the financial assets to to close those loans, your family members may have to take care those burdens. In such cases, if your loans are insured then they would be automatically closed otherwise life insurance policy can help your loved ones in this case to avoid the financial hardship.

3. Replacing Lost Income

The emotional impact coupled with the loss of income as a result of the death of a family member may have grave implications for the stability of the family. Income replacement helps replace the stream of resources, which allows the insured’s family members to maintain control of their needs even after the death of the breadwinner.

4. Education and Future Needs of Children

Without any doubt, raising a child is expensive, not to mention the cost per child per year that institutions set for education. If you can no longer care for the children by financially providing for their needs, a life insurance policy can be a way to provide for the child’s education so that they can afford a good education and be a better person out of it.

5. Peace of Mind and Financial Security

Hence, life insurance comes with many perks such as financial security, especially having in mind that your dear once will be financially taken care of in the event of any incident that was not foreseen. It provides that added security that the people you care about will be supported of their endeavours in times of hardships and maintain their health and financial status.

6. Tax Benefits

It may also be noted that life insurance policies are also exempt from taxation under the provision of Indian Income Tax act 1961. Life insurance policies have tax benefits that are included in the Income Tax Act of India, Section 80C applies to the premiums of the life insurance policy and section 10(10D) to the nominee’s retrieve of the death benefits.

Types of Life Insurance Policies in India

Among all types of financial securities that can be purchased in India at the present stage of its development, life insurance policies are popular and diverse, which is dictated by the following factors, the following plans are the most sought for the existing kind of life insurance policies available in the Indian markets through different life insurance companies.

1. Term Life Insurance

Term insurance covers a particular period of time which is known as the term of the policy. On the death of the insured before the term of the policy, a nominee or beneficiary is paid a compensation amount. Term life insurance policies offer the basic coverage without any cash accumulation abilities like whole life policies. However, in the new world some term insurance companies allow paying some percentage of funds after the term policy is over. These plans are generally more affordable and the perfect fit for people who need temporary coverage for a particular period say to pay an obligation or to provide family members with stability while the breadwinner is working.

2. Whole Life Insurance

So long as payment is made the premiums, whole life insurance runs for the life of the person being covered. Whole life insurance policies contain an amount that has an investment value in terms of its face value apart from providing a payout upon the death of the insured. Policyholders can use this cash value in the form of loans or withdrawals – therefore providing the needed finance and flexibility in relation to cash. Besides the lifetime coverage, whole life insurance is a form of insurance which can effectively act as long term saving tool and investment.

3. Endowment Plans

There are different types of endowment plans that are a blend of investment and savings and have an element of insurance. These plans provide benefits based on the maturity or death of the person who is concerned to these structured plans. Depending on the policy regimen, the policyholder gets paid a death benefit if he or she dies before the expiry of the policy. Upon the termination of the policy – normally, upon the death of the policyholder or on the expiration date of the policy – the policyholder is paid a lump sum pay out which may be accompanied by bonuses or investment incomes. Savings being held together with safety makes endowment plans a perfect choice for people wishing for money to be accumulated and for something to be left to their loved ones.

4. Unit Linked Insurance Plans (ULIPs)

ULIPs, or Unit Linked Insurance Plans, These are Investment Linked Insurance Plans that are invested together with life insurance cover. It is also important to note that policyholders can spread the premiums they pay among various types of investment instruments based on their investment objectives and risk appetite as illustrated by debt, equities, balanced among others. Nonetheless, beneficiary of ULIPs gains returns which are bench mark to the stock market as well as death benefit in the event of the policy holder’s demise. Many of them even offer partial withdrawal and fund switching services to assist customers depending on their needs.

5. Money-Back Policies

Money-back policies in fact similar to the endowment plans but also provides for monthly payments or any other periodic benefits known as survival benefits during the policy period. Basically, at different stages of life a portion of the amount has been provided for payouts regularly, with equal intervals as frequent as every few years, as and when needed, which ensures immediate cash and support. If the policyholder dies before the policy matures, the benefits go to the beneficiaries in full, excluding any additional paid for survival benefits. Money-back plans are suitable for those in the need of systematic income and life insurance as it provides coverage in terms of insurance as well as easy access to cash.

These above are few among the various life insurance policy that are available in India that is offered by the insurer. Thus, it is important to make sure to contemplate your short, middle, and long term goals, your level of tolerance towards risk and your necessary insurance requirements before choosing the insurance plan most appropriate for you. If you would like to make an informed financial decision, you might consult a financial advisor who will listen to your circumstances and come up with a suitable recommendation that fits your individual needs and financial strategy.

In conclusion, life insurance is surely an essential financial tool like term insurance that provides people and their families with protection, security, and peace of mind. The fact is, it is not legally required in India. If you are a parent, or a responsible family member, or the sole source of income, you should own a life insurance policy to give financial guarantee to your loved ones in the event that you are not there. Thus, purchasing a life insurance policy is required to protect your loved ones’ financial future and give them the assistance they require in difficult situations. You can also purchase the life insurance online but you should keep some points in mind before buying life insurance online.

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