What are the Benefits of Life Insurance Plans?

Beyond protection, life insurance may also provide tax benefits and sometimes include a cash value component that grows over time, supporting long-term financial goals.  

What is a Life Insurance Plan?

A life insurance plan, also known as a life insurance policy, is a contract between the policyholder and the insurance company. The policyholder agrees to pay a regular premium to the insurer. In exchange, the company provides a lump sum payment, also called a death benefit, to the designated beneficiaries upon the policyholder's death. The beneficiaries can use the death benefit to help cover funeral costs, outstanding debts, and daily living expenses.

How Does Life Insurance Work?

Let us understand ‘How does life insurance work?’ with the help of an example: Rahul, a non-smoking male of 18 years of age with a yearly salaried income of Rs. 12 Lakhs, bought a term life insurance plan (a type of pure life insurance) to secure his loved ones financially. He compared the best term plans on Policybazaar and chose the one that best suits his preferences. He chose 1 Crore life cover for a 12-year policy term and will now be paying Rs. 525/month for the next 12 years (until he turns 30) to secure his loved ones.

As we have understood the meaning of life insurance, let's read on to learn more about the benefits of a life insurance policy:  

What are the 5 Benefits of Buying a Life Insurance Policy?

Here is a list of 5 benefits of life insurance:

1. Financial Security and Peace of Mind

   Buying a life insurance policy offers financial security and peace of mind. If the policyholder were to meet with any unfortunate event, they should know that their loved ones will have a financial safety shield. Everyone has different financial liabilities, but sufficient life coverage ensures that debts/loans or family members will be cared for financially in case of death.

2. Wealth Creation  

   Life insurance plans allow you to create wealth and build a corpus. Apart from life cover, you can invest your premium amounts in multiple investment options based on your risk appetite. These plans are considered good wealth and corpus builders in the future.

3. Tax Benefits  

   You can claim life insurance tax benefits per the prevailing tax laws under sections 80C and 10(10D) of the Income Tax Act, 1961. The premium paid provides a tax deduction u/s 80C of the ITA, 1961. This means up to 1.5 Lacs premium paid yearly is deducted from the gross income, reducing your tax outgo. Moreover, the maturity benefits of life insurance are tax-free, and this comes u/s 10(10D) of the ITA.

4. Buy at a Young Age and Save More

   Life insurance plans allow you to opt for low premium rates while young. If you purchase the same plan at an older age, you will be paying a much higher premium than if you bought the same plan when you were younger.
   For example, an 18-year-old male buying an Rs. 1 Crore term insurance plan for 30 years of coverage will have to pay Rs. 494 per month. If they buy the same plan under the same conditions at 30 years of age, they will have to pay Rs. 818 per month.

5. Maturity Benefits

   In case of the unfortunate death of the policyholder, the nominee/beneficiary of the policy receives the life cover amount until the premiums have been paid completely. The amount, i.e., the sum assured from the term policy, can be used by the family for various reasons, such as covering routine bills, paying back loans, paying children's fees, and others.

How To Plan Your Life with Different Life Insurance Plans?

Insurers understand that individuals have unique needs from their plans, yet life insurance is crucial for everyone.
Various life insurance plans cater to different requirements based on life stages. For example, someone nearing retirement needs a different plan than a new earner. Choosing a life insurance plan suited to your financial profile is important, especially if you have a higher risk appetite for potentially greater returns.
In addition to that, riders enable you to customize your life insurance benefits, offering a cost-effective alternative to standalone policies.

What are the Factors to Consider Before Buying Life Insurance Plans? 

Before buying the most suitable life insurance plan for yourself, here is a list of factors you should keep in mind to get the maximum benefits of life insurance:

• Compare life insurance plans: You should always compare life insurance plans online to find the plan with the lowest premium rates. This ensures financial security and peace of mind without burning your pockets. You can also visit the Policybazaar website to compare 15+ insurers to buy the best life or term insurance plans.

• Flexible-Premium Payments: You should opt for a life insurance plan that offers flexible premium payment terms and frequencies. Most life insurance plans can be bought by paying the premiums in a single, regular, or limited premium payment term. You can also pay the premium at your convenience on a monthly, quarterly, semi-annual, or annual basis.

• Long Policy Tenure: A long policy tenure ensures you are covered under life insurance benefits for longer. You can get a life insurance policy covering your needs for 5 to 40 years. One of the benefits of life insurance types like a whole life insurance plan is that it offers coverage for your whole life i.e., till 99 or 100 years of age, which means your family can get guaranteed benefits in case of your unfortunate demise.

• Additional Riders: You can go through the list of riders offered under each plan and include the relevant riders to enhance life insurance coverage and benefits. These riders can payout in case of a critical illness, disability, or waiver of premium on the loss of a job and still allow you to continue the plan’s coverage even after claiming the rider benefit.

• Claim Settlement Process: The Indian insurance regulation body IRDAI releases its annual report stating the claim settlement ratio (CSR) of all the Indian insurers. A company's CSR indicates an insurer's capability to settle your family’s future claims. You should always purchase a life insurance plan from a company with a CSR of at least 95%.

• Policy Benefits: The policy benefits of life insurance plans differ between insurers and plans. For an informed policy purchase, you should review the list of life insurance benefits provided under each plan, such as the life stage, riders, bonuses, and more.

What are the Consequences of Not Having a Life Insurance?

Not having life insurance can cause big problems for your family if something happens to you. In India, many people die every day from accidents, illnesses, and disasters. If you're the one earning money for your family and you pass away, they could face serious financial trouble. Let us look at some of the consequences your family may face if you don’t have a life insurance:

1. Leaving your family in Debt:

   If you have any loans when you die, your family might have to deal with debt collectors. Life insurance can help pay off these loans, so your family doesn't have to worry about them. Even if you don't have loans now, your family might need money in the future, like for big expenses or emergencies. Life insurance can provide that financial support.

2. Risking your Child’s future:

   Education nowadays is expensive, and your child's future might be in trouble if you're not there to help pay for itif you're not there to help pay for it, your child's future might be in trouble. Life insurance can ensure money for your child's education, even if you're not around.

3. You might end up depending on others:

   When you retire, you want to be financially independent. Life insurance can help with that, too. It can provide a steady income even after you stop working, so you don't have to rely on others.

How To Buy a Life Insurance Plan From Policybazaar?

You can buy a life insurance plan online in just a few minutes by following the below-mentioned steps:

Step 1: Go to Policybazaar’s Life insurance page

Step 2: Enter your name, contact information, gender, and date of birth

Step 3: Give details about your smoking habits, occupation type, annual income, and educational background

Step 4: Choose the most suitable plan and proceed to pay using your preferred payment mode

Wrapping it Up!

Life insurance is a foundation for a sound financial plan, offering security, investment opportunities, and peace of mind. It is not just about protection; it also helps in wealth accumulation and retirement planning. By understanding the benefits of life insurance and selecting the right plan, you can safeguard your family's future and effectively meet your long-term financial goals.

FAQs