What are the Benefits of a Life Insurance Policy?

bySurobhi BoseLast Updated: August 17, 2022
What are the Benefits of Life Insurance Policy
What are the Benefits of Life Insurance Policy

The importance of having a life insurance policy is well known to everyone. However, contrary to this, only 10% of Indians are insured. But why is it so important? Well, regardless of how much a person earns, nobody knows how life is going to pan out. Thus, it is very important to ensure the financial safety of the loved ones? Life insurance plans are specifically designed to provide financial safety to the family in case of the insured’s demise. Moreover, it also works as a profitable investment option that helps an individual to achieve different financial goals in life. In this blog, we have discussed some of the benefits of a life insurance policy in detail.

Benefits of Life Insurance Policy

The following are the benefits of having a life insurance policy:

Provides protection to the family

This is one of the most important advantages offered by the life insurance policy. If a person is the sole breadwinner of the family, then he/she would certainly not want his/her family to suffer even after he/she is gone. A life insurance plan provides coverage to the family against all the liabilities, whether it is about replacing the lost income, providing financial assistance to the family, or taking care of the child’s education.

Helps to deal with debt

Nobody wants their family to deal with any type of financial liabilities during a crisis. With the right life insurance plan, any outstanding debt like an auto loan, home loan, loan on the credit card, or a personal loan is taken care of in case of an emergency.

Helps to achieve a long-term financial objective

Since life insurance plans are a long-term financial product, it helps an individual to achieve the long-term financial objectives of life such as buying a home or planning for retirement, etc. Moreover, some of the life insurance policies like ULIP also offer the advantage to invest in the market and gain high returns on investment. These plans work as an investment opportunity to accumulate wealth in the long term.

Assured income through annuities

This is another major benefit of a life insurance policy. The retirement plans offered by the life insurance policy not only provide insurance coverage to the family of the insured but also offer an opportunity to create wealth in the long term so that they can live a secure life after retirement. Life insurance pension plans become the best instrument that offers steady pay-outs in the form of annuities. In simple terms, it acts as a source of pension during retirement.

A steady investment option

A life insurance plan is more than just a plain instrument that offers an assured replacement at the loss of income but also acts as an investment option that offers a significant return on the amount of the premium paid, during an active tenure of the policy. As per the choice of the policyholder, several life insurance plans offer considerable returns at the time of maturity. So, it offers dual protection by letting the buyer achieve investment goals and protecting the family from a sudden income loss.

Tax benefits

Tax Benefit offered by a life insurance policy makes it a lucrative deal for many policyholders. Here are tax benefits offered by life insurance policies under specific sections of the Income Tax Act-

Section 80C- For paying the policy premium, a policyholder can avail of tax benefits under Section 80C of the Indian Income Tax Act, 1961. The premium paid up to the maximum limit of Rs.1.5 lakh is eligible for tax exemption.

under section 10D- The maturity proceeds are eligible for tax exemption under section 10(10D) of the IT Act.

Discount while paying online

The payment mode for the life insurance premium chosen by an individual affects the premium of a life insurance policy in many ways. Moreover, if the premium is paid online then the administrative cost of the insurance company cuts down considerably. Thus, the policyholder can avail of discounts on the premium amount. Since paperwork is excluded, the entailing cost also gets excluded. At the same time, it eliminates the middlemen or an agent’s hefty commission from the insured, which is charged for offline buying and renewal. Since the discount varies from company to company, there is no fixed amount.

For premium payments, insurance companies offer various payment periodicities as per the feasibility of the policyholder, like opting for annually, half-yearly, quarterly, and monthly modes.

Therefore, if a policyholder chooses to pay the premium in an annual model, the company uses it for investment purposes, which means more profit and benefit for the company. Once the mode opts, the discount is often already included in the charged premium rates.

The business option

This benefit is offered by the life insurance company to the policyholder who owns a business. So, in case of the demise of the insured, his business partners can purchase the policyholder’s shares without much trouble. It is an agreement-based option, where the stakeholders sign a bond, which lets them own the policy, but binds them legally to pay the share price to the dependants of the demised.

Wrapping it Up!

A life insurance policy is a lucrative financial tool that provides the benefit of protection along with an opportunity to create a financial cushion in the long term. As the need for the life insurance policy differs from person to person, an individual should compare the plans online and choose the best plan as per his/her requirement.

What is a maturity benefit in a life insurance policy?
If the life assured survives the entire tenure of the policy and all the premiums of the policy are duly paid then a total sum assured amount is paid to the policyholder as maturity benefit and the tenure of the policy comes to an end.
What is a death benefit in a life insurance policy?
In case of the unfortunate demise of the life assured during the policy tenure, the total sum assured amount is paid to the beneficiary of the policy as death benefit and the policy terminates.
What are the tax benefits offered under the life insurance policy?
The policyholder can avail of the tax benefit on the premium paid towards the policy and the maturity proceeds under Section 80C and 10(10D) of the IT Act.

You May Also Like