Understanding Life Insurance: Coverage, Benefits, and Importance | Spring Money

While Rohit was returning home after an important business trip, his flight met with an unfortunate accident and he and 200 people lost their lives. Kavya, his wife, was devastated to hear the news of her husband’s demise. While the grief of his loss was eternal, the responsibilities of Arav and Priya, their two kids, fell upon Kavya’s shoulders.

Kavya wasn’t able to find out ways to support her family financially. They already had a home loan of 76 lakhs for their 2BHK duplex. How will she pay for that?

She and Rohit always had plans to raise their daughter as a doctor and send their son to the US for studies. How will she do that now? All these thoughts blocked Kavya’s mind. But fortunately, Rohit had a few life insurance policies. He had always been good at managing finances and making investments for the future. He made policies that would provide his family with good financial backup if something happens to him. So, Kavya was relieved to an extent.

Life Insurance is the best investment one can make. You may be wondering why you need it. After all, you’re young, in good health, and have a family that loves you. But what if something happens to you? Who will take care of your loved ones?

You don’t want to think negatively but life is unexpected. And landing your family in trouble is something you will never want. Isn’t it? So, life insurance comes as a saviour. Let’s delve deeper to understand what life insurance is and why it matters.

What is Life Insurance?

Life insurance is a contract in which a person agrees to pay a specified sum of money (the premium) to the insurance company in exchange for protection against the risk of premature death.

A life insurance policy is a cost-effective way to have peace of mind. It gives you the security of knowing that if something happens to you, your loved ones will be taken care of financially. It is often considered a long-term savings, but it can also be used for short-term financial needs such as paying for college expenses or paying off debts.

Why do you need life insurance?

Life insurance is one of the most important financial decisions you will make. Not only does it provide financial security in your golden years, but it can also be used for several other purposes. Some of them can be-

Providing financial cushion to your family:

Remember the famous tagline of the Life Insurance Corporation of India (LIC)-

“Zindagi Ke Saath Bhi, Zindagi Ke Baad Bhi.”

That’s exactly what life insurance does, being there for you even after you aren’t alive. It is a financial cushion for your family when the breadwinner dies. By signing up for life insurance, you are ensuring that your loved ones will have enough money to live a comfortable life in case you die unexpectedly and take financial responsibility off their hands.

Protection against medical emergencies:

According to a survey by SBI Life, 56% of Indians have accumulated emergency funds since the pandemic and 53% have insured themselves with life and health insurance.

With India recording the highest medical inflation in 2021, the demand for health insurance remained strong in FY22 with a growth of 25%, says a report by Motilal Oswal Financial Services.

After the pandemic shattered the world along with many precious lives, everyone is now much more cautious about their health and well-being. But in this fast-paced life, our daily lifestyle gets affected a lot. To protect us from the uncertainties of critical diseases, many life insurance companies come with a plan that covers medical illness as well, thus helping you with urgent necessities to pay medical bills, treatment costs, and other expenses related to your care.

It's tax-efficient:

The thought of saving taxes brings immense joy. Doesn’t it? You will be surprised to know that life insurance has special tax benefits that boost your refund when you file your return.

Under Section 80C of the Income Tax Act, the policy premium you pay is entitled to a tax deduction of up to Rs 1.5 lakh annually. Additionally, Section 10 (10D) of the Income Tax Act exempts from taxation any sum paid upon the death of the insured.

It pays off debts:

Debts like a mortgage or auto loan can seem overwhelming. A life insurance policy can help ensure your loved ones don’t shoulder this burden if something happens to you.

Rohit had an insurance policy with a coverage of Rs. 1.5 crore. He used to pay an annual premium of Rs 20k every year for the last 10 years. After his unfortunate death, Kavya received all the money and was able to pay back the home loan as well as save some money for their children's education.

Depending on the type of policy you choose, life insurance can also help pay for final expenses and create an inheritance for your loved ones. Some life insurance policies also offer cash value that you can access while you’re alive, making them a versatile tool to help you with financial needs that arise throughout your life.

Secures your child’s future education expenses:

A life insurance policy is more than just a way to pay off your mortgage or final expenses when you die. It can also be a valuable part of your family's financial security, providing money for your children's education.

Education is essential, but it is also very expensive. According to the Economic Times, the average cost of schooling in India is around 30 lakhs and college can cost up to a crore. And those prices are only going up.

How can you be sure that you will be able to help your child pay for their education when the time comes? Life insurance can make sure that your children have the opportunity to continue their education, even if you're no longer there to help pay the bills.

Final Words

According to Hindustan Times, the Indian life insurance industry will grow at an exceptional rate of 6.6 percent (in real terms) in 2022 and further grow at 7.1 percent in 2023.

Also, India is set to become the 6th largest insurance market in the next decade. This clearly indicates the need for life insurance among Indians.

So to sum it up, life insurance is a valuable asset that can keep you and your loved ones protected in the event of an untimely death. The unfortunate reality is that we will all eventually die, but with your house, car payments, college fund, or any other loans or debts you may have, others will be left behind to deal with these things without you.

Insurance is an integral part of any financial plan as it helps you to protect everything you've worked so hard to achieve. Low-interest rates may make this a difficult decision, however, if you think about not just yourself but also the people who depend on you in the future, life insurance could be the right choice for you.

If you are confused about how to choose life insurance for you, stay tuned to our next article and subscribe to our newsletter to get the latest articles right into your inbox.