Life insurance is a policy that primarily covers the risk of premature death. While dying is certain, predicting when you would die is certainly impossible. In the case of untimely death, your family might suffer an unparalleled financial loss, especially if you are the sole breadwinner.
Therefore, life insurance plans are aimed at helping you plan for unforeseen contingencies. While these policies have their fair share of benefits, they have some drawbacks too. Let’s analyse the life insurance benefits and life insurance cons for informed decision-making.
This article covers:
Benefits of life insurance
Emergencies always come unannounced. While you might not be able to avoid them, you definitely can formulate a financial plan in advance to face them. Life insurance is that financial plan – a policy that covers the risk of untimely death. In the case of such an untoward incident, the policy pays a financial benefit to the family to ensure that they are able to tide over the sudden financial crunch and are able to get back up on their feet.
The objective of life insurance plans is to provide financial security. These plans promise a death benefit in the case of untimely death. As such, you get security in the knowledge that your family would be financially protected even when you are not around to provide for them. Moreover, with the financial assistance provided by life insurance plans, your financial goals can also be met.
Life insurance plans provide attractive tax savings. The premiums that you pay are allowed as a tax-free deduction from your taxable income. You can claim a deduction of up to Rs. 1.5 lakh under Section 80C. Besides the premium, life insurance benefits also enjoy tax exemptions. The death benefit is fully tax-free. The maturity benefit, on the other hand, enjoys tax exemption under Section 10 (10D) subject to certain conditions.
So, life insurance plans can help you create a tax-efficient corpus, all the while providing coverage against untimely death.
With the popularity and penetration of the internet and smartphones, buying life insurance plans has become quite simple. All it would take is a few clicks to get you and your family insured. The easy availability has drawn the common public more towards getting insured through life insurance.
Life insurance plans are affordable. They allow you to pick the most suitable premium payment mode depending on your financial lifestyle. You can pay the premiums throughout the policy tenure, for a limited time or even in one lump sum when buying the plan.
Moreover, insurers allow you the choice of the premium paying frequency. You can choose to pay the premium as an annual expense or through the half-yearly, quarterly, or monthly modes. Thus, whatever your budget, life insurance can fit into it as you have the option of a flexible premium payment mode.
Wide range of plans
There are different types of life insurance plans, each with its own set of benefits. You can choose different plans depending on your financial goals.
Have a look at how the different types of policies fit different financial needs:
- A term insurance plan helps you replace your income in your absence and fulfils the income replacement need.
- Endowment and money back plans help you save and get a guaranteed corpus.
- ULIPs help you earn investment returns.
- Child plans help you create a secured corpus for your child.
- Pension plans help you plan for retirement.
Whatever be your financial needs, life insurance can prove to be a right fit.
Drawbacks of life insurance
Life insurance plans are long-term contracts as their primary objective is insurance cover. So, if you are looking for shorter maturity periods, expect large expenses on the horizon or need liquid cash, life insurance policies would not be a good fit.
Life insurance is a technical concept that comes associated with different terms and conditions. Unless you understand the workings of the policy, you will not be able to unlock its full potential. As such, there is a danger of being misled or mis-sold a policy that does not fulfil your needs.
To avoid this possibility and to buy a suitable plan, you might need to consult with a trusted financial advisor.
Limited benefit on premium discontinuation
If you opt for a regular or limited premium paying term, you are required to pay the premium for the specified tenure. If you, however, discontinue the premiums, you will lose out on the benefits. Though the coverage might be allowed under some plans if you have paid a certain number of premiums, the benefits payable on death or maturity would be considerably reduced.
Not enough liquidity
As life insurance plans are long term investments, they have limited liquidity. If you need instant funds for an emergency, this policy might not come to your aid. Though policy loans are available and ULIPs allow partial withdrawals, the facility to exit the policy is limited. Even if available, it involves a considerable loss of investment.
Should you buy a life insurance policy?
Given these pros and cons, you must be wondering if life insurance plans are worth buying?
Well, the answer is, of course, they are!
The coverage available under life insurance plans is not available under any other investment avenue. Life insurance helps you plan for emergencies and the associated financial loss. By ensuring financial assistance in the case of death, they give financial security. So, assess the pros and cons of life insurance plans and then invest in suitable policies that align with your financial needs.