Reasons you need insurance
Here are some reasons why insurance is an important part of your financial portfolio –
1. Coverage against financial losses:
Insurance policies are designed to cover unexpected losses which might cause a financial strain. For instance, if you are the breadwinner of your family, in the case of your untimely demise, your family might suffer a financial loss. In your absence, they would have no one to pay for their basic needs. In such cases, a life insurance plan comes in handy. It pays a death benefit which helps the family meet its financial needs when the breadwinner is not around.
Thus, insurance plans cover financial losses and compensate you or your family against them so that you can avoid financial strain.
2. Different types of plans:
There are different types of insurance plans covering different risks. For instance, one of the type of life insurance plan - term life insurance covers the risk of dying too early. Similarly, health insurance plans cover the financial cost which you might incur in an illness or injury. Motor insurance plans cover the risk of financial losses due to accidents or theft of vehicles.
Thus, you can choose suitable insurance plans and get coverage against the different types of risks that you might have.
3. Can help fulfil financial goals:
When it comes to life insurance plans, the different types of policies available can help in fulfilling different goals. For instance, a term insurance plan can fulfil the goal of income replacement, i.e., replacing the income of a deceased breadwinner. Similarly, child insurance plans can help you create a corpus for your child’s future needs, while pension plans help with retirement planning. Thus, with life insurance plans, you can fulfil your financial goals.
4. Helps to save taxes:
Insurance plans also have a tax-saving angle. The premiums paid for life insurance plans including health insurance are allowed as a deduction from your taxable income under old regime of Tax.
You can claim a maximum deduction of up to ₹1.5 lakhs under Section 80C of Income Tax Act subject to underlying terms and conditions1.
Similarly, premiums paid for health insurance plans qualify for a deduction under Section 80D2 subject to conditions mentioned therein These deductions can lower your taxable income and help in saving taxes.
5. Gives peace of mind:
By covering unexpected financial emergencies, insurance policies can give peace of mind. They help you mitigate the loss suffered so that you don’t face a financial crisis and your savings and budget are not hampered.
How to choose the Ideal insurance plan?
As mentioned earlier, there are different types of insurance plans available in the market. To choose the right insurance policy, you have to assess your needs. Here’s how you can do so –
1. Under life insurance, a term insurance policy is suitable for individuals looking to secure their family’s finances in their absence. So, if your family depends on you financially, a term insurance policy may be the right choice.
2. A health insurance policy is suitable for individuals looking for financial protection in medical emergencies. Since medical emergencies can strike anyone, health insurance plans are suitable for most individuals.
3. If you want to plan a secured corpus for your child’s future needs, you may want to buy a child insurance plan.
4. For retirement planning and to receive guaranteed* pensions, you can consider life insurance pension plans
5. If you have a vehicle, a vehicle insurance policy will be needed. While a third-party liability policy is legally mandatory3, a comprehensive policy will provide a wider scope of coverage if your vehicle is damaged or stolen.
Things to consider while selection insurance & its coverage:
When selecting an insurance policy and its coverage amount, here are some things to consider –
1. Financial needs
The insurance policy should fit with your financial needs and requirements
2. Coverage duration
In the case of life insurance plans, which are offered for long-term periods, choose a tenure that aligns with your financial goals. This will help you get the policy benefits when you need them.
3. Premium
The next thing to consider is the premium amount. The premium for the insurance policy should be affordable so that you can pay it without suffering financial strain. Moreover, in the case of life insurance plans, check the premium payment term and mode. You can choose from single, limited or regular premiums and pay the amount annually, half-yearly, quarterly, or monthly. Choose a term and mode which is pocket-friendly.
4. Riders or add-ons
Many insurance plans offer optional coverage benefits called riders or add-ons, on payment of nominal additional premium. These optional coverage features enhance the scope of the policy. Assess your coverage needs and choose suitable riders and add-ons for an inclusive scope of protection.
How to determine the right sum assured?
When buying a life insurance policy, choosing the right sum assured is essential for complete financial protection. The right sum assured may give your family optimal funds for their basic lifestyle expenses and also allow them to fulfil their goals in your absence. Thus, it is essential to choose the right sum assured.
When it comes to the right sum assured, the basic thumb rule states having a coverage of 10X times your annual income4. This means that if your annual income is ₹10 lakhs, you need a minimum coverage of ₹1 crore.
There are other methods of calculation too which can help you find the right sum assured for the policy. You can also use the life insurance calculator and find the right sum assured based on your annual income, expenses, existing assets and liabilities and existing insurance cover.
Strategies to Reduce Premium Costs Without Sacrificing Coverage:
If choosing a high coverage amount is resulting in high premiums, there are ways in which you can reduce the premium costs without compromising on the coverage. Some such ways are as follows –
1. Buy the insurance policy at a younger age. Premiums depend on age. The younger you are, the lower would be your life insurance premium5. As such, when you buy a policy at a younger age, you may enjoy lower premiums.
2. You may consider quitting smoking and alcohol consumption. These lifestyle habits may cause the premiums to rise6 and if you get rid of them, your premiums may reduce.
3. Choose to pay the premium half-yearly, quarterly or monthly rather than annually. This would help you to break down the premium into affordable instalments.
4. Look for discounts available under insurance plans. These discounts can help in lowering the premium.
Conclusion:
Insurance provides financial protection against unforeseen and unexpected risks and is a good addition to your portfolio. With the right insurance plan, you can safeguard against possible financial losses and be mentally worry-free. So, assess the different types of insurance plans available in the market and buy the right policy for your coverage needs. Protect your finances against emergencies and pave the way for financial independence.
FAQs:
1. How much deduction is available U/S 80D of the Income Tax Act?
Under Section 80D, you can claim a deduction of up to ₹25,000 for health insurance premiums paid for yourself, your spouse and/or dependent children2. If you are aged 60 years and above, the deduction limit increases to ₹50,0002.
Moreover, if you pay the premium for your dependent parents’ health insurance cover, you can claim an additional deduction of ₹25,0002. This limit also increases to ₹50,000 if your parents are senior citizens2. Note that deduction is allowed only under old tax regime.
2. What are the benefits available under life insurance plans?
Life insurance plans pay a death benefit if the life assured passes away during the policy tenure. Moreover, under many plans, if the life assured survives the policy tenure, a maturity benefit is paid.
Besides the death and maturity benefits, life insurance plans also offer rider benefits. If you have added riders to your insurance policy and suffer a claim, a rider benefit will be paid.
3. What are whole life insurance plans?
Whole life insurance plans are those that provide coverage for up to 99 or 100 years of age. If the life assured passes away during the policy tenure, the death benefit is paid. On the other hand, if the life assured survives the tenure, a maturity benefit is paid under such plans.
4. Will a child plan create a corpus for my child even when I am not around?
Many child plans come with an inbuilt premium waiver rider. In other plans, the rider is offered as an optional cover. With this rider, the child's plan continues even after the parent’s demise. The insurance company pays the premium on behalf of the parent if the parent passes away during the policy tenure. On maturity, the maturity benefit is paid.
Thus, a child plan will create a corpus for your child even in your absence.
5. Is there a charge for using the life insurance calculator to find the right sum assured?
The life insurance calculator is free of cost. You can use the calculator multiple times to find the right sum assured that meets your needs.
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