As the financial year ends, most people in India tend to buy life insurance because it is tax-efficient. With hardly any time left for taking the decision, tax payers make the mistake of buying insurance for tax saving. In the process they end up choosing an unsuitable plan or paying higher premium. However, when an individual is buying a life cover, the core purpose should not be limited to just tax saving. It has a more significant purpose and importance to our lives.
An investment of around Rs 50 thousand on insurance premium will help you save approx. 15,000, if you fall under the uppermost tax bracket. Although the number is quite eye-catching and will help you save a lot taxes on your annual income, yet life insurance should not be restricted to just saving a few bucks on tax. Instead it should offer you a long-term assurance of greater wellness for tomorrow.
The rationale of life insurance is very meek. It is supposed to be a product for long-term commitments and hence buying it for tax saving should not be the key driver of one's investment decision. It's a way to protect family members financially in case a provider dies unexpectedly. Life insurance is bought for many reasons which may not only include protection and tax saving purpose but also to meet various financial goals of your life like your child's education, paying off debts etc.
Over the years, life insurance has given you peace of mind knowing that the money would be available to protect your family in a number of ways. Therefore, it is very important to understand the main motive behind every life insurance policy.
Replace Spouses' Income
This is one of the most common reasons to buy life insurance policy and makes a lot of sense if your family depends on your income. Life insurance works to provide financial security to your loved ones after you pass away. For instance, if you are the primary bread earner in your family and your loved ones rely solely on your income, then your family would not be able to cover your regular bills without your monthly income. Therefore, it is very important to get yourself an adequate coverage that they would need as an alternative to your income which is essential for maintaining your family's lifestyle.
Cover Children's Expenses
Like all other parents, you must want to be sure your kids are well taken care of and be able to afford a quality education and therefore you leave no stone unturned to provide the same. In majority of the cases, parents rate education as one of the most vital spending where they don't want to hold back and are ready to go extra mile to fulfil the dream of their kids. Foreign education costs anything between Rs 50 lakh and Rs 1 crore and often it is observed that parents take bank loan for catering to the needs of their kids. With finances playing a big role in fulfilling that dream, life insurance gives a chance to take care of your child's education even when you are not around.
Pay Off Debts
In addition to cover everyday living expenses, your family would need life insurance to pay off the debts like the mortgage so that they wouldn't have to sell the house to stay solvent. From banks' view, the guarantor is treated as good as the borrower. In a case where your spouse is the co-signer for the loan, he/she will have to take the responsibility for your loans if you die before you've paid them off. However, to protect your family, friends or anyone who helped you qualify while taking the loan, buy life insurance with the enough coverage which can help them to pay off all your debts.
Below is the price comparison of Term Insurance plans offered by 5 prominent insurers for a 30-year-old, non-smoker man, residing in a metro city. The total sum assured is Rs 1 crore.
(By Santosh Agarwal, Chief Business Officer-Life Insurance, Policybazaar.com)