A life insurance policy is one of the ways to ensure financial independence for your family; especially when you’re no longer there to support them. But then, what is life insurance?
To put it simply, it is a contract between an individual and an insurance company. Here, the insurance company agrees to provide the individual with a life cover of a certain predetermined sum of money.
Upon the death of the individual, the predetermined sum of money is paid to the nominee of the deceased, which can then be used by them for their life goals. And in return for this life cover, the individual is required to make regular payments to the insurance company in form of premiums.
Life Insurance Facts that are a must know
Now that we’ve answered the question ‘what is life insurance?’, let’s look at 10 life insurance facts that you must absolutely be aware of.
1. Life insurance provides a financial safety net for your family
By providing the family of the deceased policyholder with a lump sum pay-out, a life insurance plan helps the affected family deal with the loss of income. The pay-out that they receive can be used to cover their day-to-day expenses and carry on with their existing lifestyle without straining their finances.
2. Life insurance can help your family manage your debts
If an individual with debt faces an untimely death, the unpaid financial obligation falls directly on their family. And with the individual no longer present to support them financially, the family might face a hard time trying to meet the financial obligations. The pay-out from a life insurance plan can help the family tide over the debts of the deceased individual without having to dip into their savings.
3. Life insurance gives you maturity benefits that help achieve life goals
Many life insurance policies – except pure term insurance plans - come with not only death benefits, but also maturity benefits. That is, if a policyholder survives till the end of the policy tenure, the insurance provider pays out a certain lumpsum to the policyholder. This lump sum payment can be used by the policyholder to meet different life goals - whether it is to purchase your very own house or your dream car. Maturity proceeds received are tax free subject to satisfaction of conditions mentioned under Section 10(10D) of Income Tax Act 1961.
4. You can avail a loan using your life insurance policy
No list of life insurance myths and facts is complete without this. Did you know that life insurance plans like endowment plans allow you to avail a loan from the insurance company themselves? If you’re in an urgent need of money, you can simply use your life insurance policy as collateral and avail a loan right away. Once your needs are satisfied, you can then repay it as per the terms and conditions of the policy.
5. Life insurance ensures you enjoy a stress-free retirement
Some life insurance plans can provide a steady source of income which you can use to maintain your current lifestyle post your retirement. The steady stream if income can contribute to your financial safety net after retirement because you will no longer have your primary income like a salary to rely on.
6. Life insurance benefits can be enhanced with riders
You can increase the life cover offered by a life insurance plan with additional riders. These riders offer specific benefits over and above what your base plan offers with minimum extra charges. For instance, an accidental death benefit rider offers financial benefits in case of death due to an accident. And a critical illness rider saves you the worry about having to pay for expensive medical treatments upon diagnosis of specified critical illnesses. Instead, you can use the pay-out that you receive from the rider to fund your treatment. There are also other riders like waiver of premium rider and family income benefit rider etc.
7. Life insurance premiums tend to be lower when you’re younger
This is surely one of the most important life insurance facts that you should know of. One of the many factors that go into determining your life insurance premiums is your age. And the older you are, the higher the life insurance premium that you would have to pay would be. That’s why it is important to always purchase a life insurance plan when you’re young.
8. Life insurance can help you save tax
One of the many benefits of life insurance is that you get to enjoy several tax benefits. For instance, the life insurance premiums that you pay are eligible for deductions under section 80C of the Income Tax Act, 1961. And if you opt for the critical illness rider along with your insurance plan, the rider premium that you pay would also be eligible for tax deductions under section 80D of the Income Tax Act, 1961.
Tax exemptions are also available under Section 10(10D) of the Income Tax Act, 1961 (the 'Act') on the maturity benefits and death benefits subject to provisions stated in the act.
9. Life insurance gives you peace of mind
Another one of the benefits of life insurance is that you can rest assured of giving your family financial protection even when you’re not around to take care of them. By knowing that your family will be well taken care of financially after you’re long gone, you can finally be at peace with your mind.
10. You may not be able to purchase life insurance later on in your life
This is another major entry in the list of life insurance myths and facts that you should be aware of. As you know already, it is advisable to purchase life insurance as early as you can. Another reason for this is that, as you age, your health deteriorates, and you tend to develop illnesses and diseases. And once you develop certain illnesses, they may render your ineligible to purchase a policy, causing you to miss out on the benefits of life insurance. Most life insurance plans have a minimum and maximum age of eligibility. Similarly, there are several assumptions about term insurance, such as the ideal age for obtaining a term policy is 50 or 60 years, or that term insurance is only necessary after retirement, as with many popular fallacies. Many term insurances still cover you until you're 70 or 75 years old.
Now that you’re aware of the most important life insurance facts, go ahead and invest in a life insurance plan right away. This way, you can not only give your family the financial protection they deserve, but also be able to further your own life goals as well.