Financial Security in Life Insurance

In simple terms, life insurance is an insurance product that ensures your family’s financial stability, helping them cover essential expenses and maintain their lifestyle in your absence. Let us understand how life insurance provides financial security, why it’s important, and how to choose the right coverage to meet your needs.

What Is Financial Security in Life Insurance?

When we talk about financial security in life insurance, we refer to the financial protection it offers to your family in case of your untimely death. If you are the primary breadwinner or contribute significantly to household finances, your sudden absence could create financial strain. Life insurance ensures that your family will not have to face this burden.

The life insurance plan will pay out a death benefit (a lump sum of money) to your beneficiaries, such as your spouse, children, or other dependents, if you pass away during the policy term. This payout can be used for various financial needs, including daily living expenses, education costs, debts, or even retirement savings. It acts as a safety net, providing financial support during a challenging time.

Why Is Financial Security Important in Life Insurance?

Financial security is crucial for several reasons, especially if you have dependents who rely on you. Here are some of the main benefits of life insurance in ensuring financial security:

• Income Replacement: If you are the primary income earner, your family may struggle to maintain their standard of living without your financial support. The death benefit from life insurance can help your family with income replacement and allow them to continue covering daily expenses, such as rent, utilities, and groceries.

• Debt Repayment: Many families have loans or mortgages. If you pass away with outstanding debts, your family could be left with the responsibility of repaying them. Life insurance for home loan can be used to settle these debts, ensuring that your family doesn’t have to worry about losing their home or other assets.

• Future Expenses: Life insurance also helps cover future costs with its wealth creation benefits. This helps you create wealth to fulfil lifelong goals like securing your spouse’s retirement. By buying life insurance, you’re not just securing your family’s future in your absence, but also caring for the long-term financial well-being of your loved ones.

• Secure Child’s Future: With life insurance plans, you can secure the financial future of your loved ones as the payout from these plans can help your child take care of his/her higher education, fund their business endeavours, or pay for their future wedding.

• Tax Saving Benefits: Various sections of the Income Tax Act, 1961 allow you to claim life insurance tax benefits as per the prevailing tax laws. You can consult your tax advisor to get a better understanding of the tax benefits applicable to your profile.

• Peace of Mind: Having life insurance gives you and your family peace of mind. You can rest easy knowing that if anything happens to you, they will have the financial means to carry on without severe hardship.

What are the Types of Life Insurance for Financial Security?

Various types of life insurance policies offer financial security. They are as follows:

• Term Life Insurance: This policy provides coverage for a specific period, such as 10, 20, or 30 years. If you suffer an untimely death within the policy term, your family will receive the death benefit. Term life insurance is affordable and ideal for covering temporary needs, such as paying off a mortgage or securing your children’s education.

• Whole Life Insurance: This is a permanent life insurance policy that offers lifelong coverage. It also includes a cash value component, which grows over time and can be used as an investment or savings. While whole life insurance has slightly higher premiums, it ensures financial protection for the long term and builds wealth.

• Endowment Plans: Endowment plans are traditional life insurance policies that combine savings and protection. They pay out a lump sum either on the policyholder’s death or after a specified maturity period, whichever comes first. These plans are ideal for those looking for low-risk savings options along with life cover.

• ULIP (Unit Linked Insurance Plans): ULIPs are hybrid plans that offer both investment and insurance benefits. A portion of your premium goes towards life cover, while the rest is invested in market-linked instruments like equity or debt funds. These are suitable for individuals willing to take moderate to high investment risks for potentially higher returns.

• Child Insurance Plans: Child insurance plans help parents secure their child’s future financial needs, such as education or marriage. These plans provide a lump sum payout in case of the policyholder's untimely demise, and may also include regular payouts at key milestones in the child’s life. They combine protection and disciplined savings.

• Pension/Retirement Plans: Pension or retirement plans are designed to build a steady income stream for your post-retirement years. These plans accumulate savings during your earning years and offer regular payouts after retirement. They are ideal for individuals seeking financial independence in their later years.

How to Choose the Right Cover Amount for Financial Security?

Choosing the right life insurance sum assured depends on your financial situation, goals, and the needs of your dependents. Here are some steps to help you make the right decision:

• Calculate the Coverage Amount: The general thumb rule is to get life insurance coverage equal to 10–20 times your current annual income. This ensures that your family has enough money to replace your income for several years and cover any major expenses. You can also use the human life value calculator to get an estimate of the ideal cover amount for your family.

• Assess Your Financial Needs: Start by calculating your family’s current expenses, such as rent, groceries, and utilities. Then consider future needs like education, medical costs, and any debts you have. You should also account for inflation to ensure the death benefit will be sufficient in the future.

• Inflation: The amount you set as a sum assured enough to cover your family’s financial needs today, might not be enough to cover their needs 20 years later. Therefore, it is important to factor in potential inflation and its impact on the sum assured at the end of your desired policy tenure.

• Determine the Policy Term: If you need coverage for a specific period, like until your children finish college or your mortgage is paid off, term life insurance may be the best option. If you want lifelong coverage and an opportunity to build cash value, whole life insurance might be a better choice.

• Review Your Beneficiaries: Make sure to choose the right beneficiaries who will receive the death benefit. You can select your spouse, children, or even charitable organizations, depending on your goals.

• Consider Your Budget: While life insurance is essential for financial security, it’s important to choose a policy that fits within your budget. Many people opt for term life insurance because it provides high coverage at an affordable premium. However, if you can afford it, a whole life policy offers additional benefits like savings and investments. You can use the life insurance calculator to get a better understanding of the premiums applicable for your desired life insurance policy.

Can I Get Term Insurance with Money Back Benefits?

Yes, there are several types of term insurance plans that return the premiums paid till the termination of the policy. For example, the Term insurance with return of premium pays back all the premiums paid on the survival of the policy tenure. However, the no cost term insurance plan offers a special window during which you can exit the plan early and receive all the premiums paid back at till that point.

How to Get Financial Security with Life Insurance via Policybazaar?

Here is how you can get financial security with life insurance through Policybazaar:

Step 1: Visit the life insurance page of Policybazaar

Step 2: Fill in your personal information like name, gender, and mobile number

Step 3: Select the right smoking habits, educational qualifications, annual income, and occupation type

Step 4: Choose the best life insurance for financial protection and proceed to pay the first premium

Final Thoughts

Life insurance plays a vital role in providing financial security for your loved ones. By understanding your financial needs, choosing the right coverage, and making sure your family is protected, you can ensure they won’t face financial hardship if something happens to you. Whether you opt for term life insurance or whole life insurance, the key is to make sure your family has the support they need to continue living comfortably and achieving their future goals.

Note: You should also check the term life insurance benefits if you are planning to purchase the term insurance plan.