What is the Importance of Life Insurance?

Read on to learn more about the need and importance of life insurance:

What Is Life Insurance?

Life insurance is a contract between an insurance company and a policyholder, where the insurer promises to pay a fixed amount of money after a set time or upon the policyholder's death in exchange for premiums. Life insurance ensures that the policyholder and his family/loved ones are secured in the long-run or after the policyholder’s unforeseen demise.

There are two types of life insurance policies:

• Pure Protection Plan/Term Insurance: A pure protection plan, also known as Term Insurance, provides a lump sum payment (called death benefit) to the family/loved ones in case of the policyholder's unfortunate death, ensuring the family’s future security.

• Savings Plan: A financial product that helps plan long-term goals, such as buying a home or funding higher education, while also providing life coverage benefits It ensures future returns once you survive/outlive the plan.

Why Do You Need Life Insurance?

As we have understood the importance of life insurance, now let’s understand the need of life insurance:

• Secure the Financial Future of Your Family: Life insurance plans secure you and your family members financially. Every parent wants their kids to be taken care of even in case of their absence. Life insurance ensures your dear ones won’t suffer financially when you are not around. This way, you can understand the importance of life insurance as it can help you protect your family during your unfortunate death.

• Complete your Financial Goals: Each of us has life goals that require financial planning. Life insurance policies enable you to achieve those aspirations by combining savings with life coverage. They encourage disciplined saving, where small monthly insurance premiums accumulate over time, steadily growing into a substantial financial resource. The life insurance plan ensures you'll have the necessary wealth in the years ahead to achieve your long-term financial objectives.

• Save on Taxes: The tax-saving benefits add to the importance of life insurance as you can save on your yearly taxes per prevailing tax laws. You can save under sections 80C, 80D, and 10(10D) of the Income Tax Act,1961.

• Peace of Mind: Peace of mind is one of the biggest need of life insurance. Life insurance plans can provide you with the needed peace of mind by knowing that your family can care for themselves financially in the event of your absence. This way, you can live stress-free and improve your quality of life.

What Are The Top 7 Reasons To Buy Life Insurance?

Here are the top 7 reasons to buy life insurance and understand the importance of life insurance plans:

• Long-term financial goals
  Life insurance plans help create a large financial corpus for your long-term financial goals, allowing you to save money with life cover protection.

• Protect the future of your child
  All parents want to provide their children with a good future. Life insurance plans ensure your child has the best future, even in your absence.

• Loans and Liabilities
  If you have availed of a loan, it is always important to consider buying a term insurance plan. This ensures that the burden of your debts/loans does not cause any difficulty for your dependents in your absence. Term insurance plans are considered affordable to secure the amount of home loan and protect the policyholder's family in case of his/her unforeseen death.

• Education planning of Child
  Child education policies helps build a financial corpus for your kid’s education expenses in future. This will ensure your spouse has a financially independent life when you are not around. The biggest importance of life insurance is that child plans help you secure your child’s future by providing emergency funds to pay for their higher education or marriage. Your child can also use this money to realise their lifelong dreams.

• Secure Dependent/Spouse
  The importance of life insurance is especially noticeable in the case of the main income earner’s unfortunate death. A life insurance plan can help stabilize the future of your dependent and/or spouse and help them live a financially independent life even when you aren’t around.

• Secure Retirement
  Life insurance plans can help you secure your and your spouse’s post-retirement life by providing survival and maturity benefits if you outlive the policy term. You can use these funds to maintain your financial independence after losing your regular monthly income. The payout from these plans can be used to fulfil your post-retirement dreams and live your life comfortably in retirement.

• Tax-Free legacy
  Life insurance payouts are free of tax u/s 10(10D) of the Income Tax Act, 1961. So you can live your life comfortably after retirement. Leaving a tax-free legacy behind is one of the importance of life insurance.

The need of life insurance cannot be overstated. It serves as a pillar of financial security, protecting your loved ones and ensuring their financial stability when you're no longer there to provide for them.

What Are The Factors to Consider Before Buying a Life Insurance Plan?

Several factors can help you understand the importance of life insurance. Some of the factors that you need to consider before buying the most suitable life insurance plan in India are:

• Life Cover Amount: You should select the right life cover by assessing your annual income, monthly expenses, outstanding loans, and other financial goals of the family. This way you can increase the importance of life insurance for your family by buying life insurance with a large life cover.

• Policy Tenure: The policy tenure of your life insurance policy should be long enough to cover you until your financial dependents are no longer dependent on you anymore. If you have dependents like parents and/or a non-working spouse, then you can opt for whole life insurance to ensure their financial security for your whole life.

• Additional Benefits: Certain life insurance policies can improve the importance of life insurance by offering different bonuses, life stage benefits, as well as the option of including available riders in the base plan. You should review the add-on riders list and include the most relevant riders in the base plan. 

• Policy Customization: Make sure that the life insurance policy you purchase allows you to customise the plan per your needs. This can be in the form of selecting suitable policy terms, appropriate life cover, different premium payment modes, frequencies, and flexible payout options.

• Policy T&Cs: Always read the policy documents' fine print to understand better the inclusions and exclusions of the life insurance plan. This way, you and your family can avoid any future confusion at the time of policy or rider claims.

• Claim Settlement Ratio: A company's Claim Settlement Ratio greatly impacts the importance of life insurance. It is the ratio of the number of claims received by the company to the number of claims settled by the company in a financial year. A life insurance plan from an insurer with a high CSR can ensure that your family’s potential claim in the future will be settled seamlessly.

How to Buy a Life Insurance Plan Online in India?

Here is how you can buy a life insurance plan in 2023 from the comfort of your home:

• Step 1: Visit the life insurance page of Policybazaar

• Step 2: Select the type of life insurance you want to buy: Term or Investment

• Step 3: Fill in your name, gender, mobile number, and date of birth

• Step 4: Enter the details regarding your annual income, occupation type, educational background, and smoking habits

• Step 5: Go through the list of available plans and purchase the most suitable one

Wrapping It Up!

The need of life insurance plans is that it is one of the most important investments in everyone's life. These plans can not only financially secure your life but also create a corpus in the long run. You can go through the list of life insurance plans offered, their functions, and the importance of life insurance for a better understanding from Policybazaar.

FAQ's