Life Insurance
What is Life Insurance?
Life insurance is a financial instrument that provides a death benefit to your designated beneficiary (beneficiaries) in the event of your untimely demise. There are two main types of life insurance products available in India:
- Term Life Insurance: This is a pure protection plan that offers coverage for a specified period (term). If the policyholder passes away during the policy term, the death benefit is paid to the beneficiary. Term life insurance plans are generally more affordable compared to other life insurance products.
- Whole Life Insurance: These plans, besides providing death benefit coverage, also accumulate a cash value over time. The policyholder can access this cash value through loans or withdrawals (subject to policy terms and conditions). Whole life insurance plans typically have higher premiums compared to term life plans.
Why Do You Need Life Insurance?
Life insurance plays a vital role in securing your loved ones' financial future in your absence. Here's why you should consider life insurance:
- Financial Security for Beneficiaries: The death benefit payout from your life insurance policy can help your beneficiaries cover immediate and long-term financial needs such as living expenses, mortgage payments, children's education, or outstanding debts.
- Peace of Mind: Knowing your loved ones will be financially protected in case of your untimely demise provides peace of mind, allowing you to focus on living life to the fullest.
- Tax Benefits: In India, premiums paid towards your life insurance policy qualify for tax deductions under Section 80C of the Income Tax Act, 1961. Additionally, the death benefit payout from a life insurance policy is generally income tax-free.
How Much Life Insurance Coverage Do I Need?
Determining the appropriate amount of life insurance coverage depends on several factors, including:
- Your income: Consider how much income your family relies on to maintain their current lifestyle.
- Number of dependents: The number of people financially dependent on you (spouse, children, parents) should be factored into your coverage needs.
- Financial obligations: Outstanding debts (mortgage, loans) and future financial goals (child's education, retirement) should be considered when calculating coverage needs.
- Cost of living: Account for the rising cost of living to ensure your life insurance benefit will adequately support your dependents in the future.
