A life insurance policy is a very useful financial tool that may help you plan your family’s financial future. The benefits of life insurance are aplenty. From being able to help your family take care of their expenses to helping you save tax, there are plenty of such distinct uses for it. Here’s a quick overview of five of the most common creative uses that a life insurance policy has.
1. Taking care of your loved ones’ expenses
One of the main reasons why we work hard is to make sure that our family is well taken care of. However, if something untoward were to happen to you, your family may find it hard to meet their expenses and their life goals.
Here’s where a life insurance policy comes into the picture. The death benefit payout from a life insurance plan goes to the nominee listed under the plan and can be used by them to take care of their expenses and to further their life goals.
Any individual, after their demise, would want to leave behind a sizable inheritance for their children and future generations. However, considering the ever-growing cost of living, not everyone may be able to build a sizable inheritance to leave behind by investing alone. In such cases, the life cover of a life insurance plan can help. Here’s how.
An individual can take out a whole life insurance plan with a sizable life cover, which will cover them till the age of 99. And in the event of their demise, the death benefit payout that the nominees will receive can act as a kind of inheritance. The payout can then be used by the nominees as they see fit. So, with a life insurance plan, you can fulfil your dream of leaving behind an inheritance for your family without taking on too much risk.
3. Create an alternative source of income
One of the many benefits of life insurance is that it can be customised according to your needs and requirements. The death benefit (or the maturity benefits) from a typical life insurance plan is usually paid out as a lump sum amount. However, in some policies, the policyholder may choose an instalment-payout option as well, where the sum assured, or the maturity benefits are paid out in instalments as per the chosen frequency.
Opting for this method of payout allows you to create an alternative source of income for yourself or your loved ones. And it can also be very useful for those families that may not be financially competent enough to manage lump sum payouts effectively. When the death benefit is paid out in instalments, families may find it easier to manage their regular monthly expenses.
4. Reduce the tax burden
You also get to enjoy several tax benefits by simply purchasing a life insurance plan and paying the premiums due. According to section 80C of the Income Tax Act, 1961, you can claim the premiums that you pay for a life cover as deductions from your total taxable income subject to provisions stated therein. The maximum amount that you can claim each financial year is Rs. 1.5 lakhs.
The tax benefits don’t stop there though. The death benefit payout that nominees receive is also completely tax-free in their hands according to section 10(10D) of the Income Tax Act, 1961. Similarly, the maturity benefits that you receive at the end of the tenure of the insurance plan are also exempt from tax subject to satisfaction of the conditions mentioned in section 10(10D).
5. Debt Repayment
This is one of the most creative uses of a life insurance policy. If you’ve taken out any large loans for purposes like purchasing or constructing your dream home, or paying for your children’s education, the repayment period for the same can extend for years. Meanwhile, if something were to happen to you, your loved ones may find it hard to repay the loan and other debt obligations that you’ve left behind.
But, with life insurance in your portfolio, you may prevent all of that from happening. The lump sum death benefit payout that they receive can be used to pay off all outstanding loans and other obligations that you may have left behind, leaving them debt-free.
These are just a few of the many creative uses for a life insurance policy. If you haven’t already invested in one, it may be the time to consider getting a life cover for yourself. This way, you can secure the financial future of your family and also enjoy any and all of the creative benefits outlined above.