Is Life Insurance Worth Buying for Financial Security?

Life insurance plans help you meet some of the most important financial goals in life. Starting from the very basic financial need of ‘safety’ for your family, life insurance can continue to offer services until your natural demise.

Legally, life insurance is a contract between you and the insurer. Under this contract, the insurer promises to pay a large sum of money to your family for a nominal premium cost. However, life insurance plans offer a lot more than just a tool of financial protection.

You can use life insurance plans to:

• Meet important future goals for the family, like child’s higher education and marriage.
• Build wealth while passively investing in equity markets
• Build a tax-free retirement corpus for yourself and your spouse
  
• Create a reliable source of long-term (lifetime) income after retirement
  
• Leave a legacy for your children or grandchildren

With so many possibilities, you can even say that life insurance plans can help you look after almost every investment need you will encounter in your life.

Depending on the use and purpose of the life insurance plan we can have the following types:

• Pure Protection Plans: Pure protection plans offer financial safety in case of a contingency. For example, death, illness, disability, etc. Pure protection plans cannot be used for meeting future financial goals. However, they will help the survivors sail through life without financial hiccups.

• There is no investment component in these plans.

• Saving Plans: Savings plans consist of safe investment plans. These plans can help you preserve your wealth and achieve very important goals. Most of these plans will offer guaranteed returns, where you can estimate the maturity value of your investment in the beginning.

• These plans are best for saving money towards very important life goals and offering protection to such goals of your family.

• Unit Linked Insurance Plans: Unit-linked life insurance plans or ULIPs are excellent investment plans which also let you invest in equity markets. If you are an aggressive investor who wants to manage your high-risk portfolio passively, ULIPs are the best option for you.
• ULIPs offer many features and options for you to ensure that your money keeps working as per the market movements even without your intervention. Promise4Growth Plus by Canara HSBC Life Insurance is one such plan that you may consider investing in.
• Pension Plans: Pension plans are the life insurance plans which help you build a reliable income stream. These plans are also safe investment plans. However, they focus on a long-term regular income, rather than only the growth of your portfolio.
  1. Immediate Annuity Plans: The income period starts immediately after investment
  2. Deferred Annuity Plans: The income period will start after a few years from investment

These plans are best if you need to have a reliable long-term source of income out of a large corpus. You will usually get two choices with pension plans

For example, if you invested Rs. 2 crores and want to receive a quarterly income, the immediate annuity plan will start paying off right after the first three months. The deferred annuity plan, on the other hand, will ask you for the deferment period first.

So, if you choose a five-year deferment period, your first pay-out will happen five years and three months later.

Whole Life Plans: Whole life plans are a simple variation of the existing plans. The only difference is that these plans can continue to cover your life until you reach 99 or 100 years of age. There are two types of whole life plans:

• Whole Life Term Plan: Lower premium and saving component and continues till the age of 99. You can choose a limited premium payment term or equal to the policy term.
  
• Whole Life Endowment Plan: Higher premium and saving component, achieves higher cash value and can work as a retirement financial support.

Both these plans will help you leave a legacy for your family.

Life insurance is a tool and will only be as good as the choices of the user. However, if you choose the right plan for the right goals, this tool will definitely be your smart choice. Apart from all other features related to protection and investment, the following benefit makes life insurance a smart investment:

• Investment in life insurance plans is deductible from your taxable income in any fiscal year under section 80C, within the limits of Rs. 1.5 lakhs
  
• Any accrued interest and partial payments received from a life insurance plan is exempt from tax
  
• Maturity value and death benefits are also exempt from tax

Thus, life insurance helps you beat both inflation and taxes if used properly.

A life insurance policy is a protective layer added to you and your family members. It also does not let your family suffer due to a financial crunch in the case of your untimely death.