Certainly, we know about the financial benefit offered by life insurance plans to the nominees in case of an unfortunate event. However, not many are aware of the fact that life insurance can also be used as a tool for long-term financial planning. Explained below are a few aspects wherein a life insurance policy can prove beneficial. A life insurance policy:
- Works as a tax-favored source of investment
In a life insurance policy, the premiums and death benefits are tax-exempt as per Section 80C and Section 10 (10D) of the Income Tax Act, 1961.
- Functions as invisible money to help your family
You need to understand the importance of life insurance. With every premium you pay, you are providing your family with a financial back-up when the need arises.
- Offers the flexibility to waive off your future premiums
Many term insurance policies offer the waiver of premium rider, which can help continue the coverage if there is a disability.
- Gets you close to the retirement goals
If you want your investment to help you after you retire, life insurance can do it for you. There are pension plans that will be useful in retirement planning and you can use the funds during the golden years.
- Provides financial support in accidental disability or critical illness
Life insurance plans offer financial support in case of critical illness or accidental disability. All you have to do is choose the right riders over your policy. It will give you a safety net when you are unable to work.
- Can be used as collateral
This does not apply to a term insurance policy. In the case of other plans, you can use it to secure your loan. A plan with a maturity benefit can be used as collateral when borrowing funds, thereby offering you financial flexibility during an emergency.
- Offers the option to return the money if you survive
Life insurance plans such as endowment plans and unit-linked insurance plans (ULIPs) provide you with the maturity benefit if you survive the policy term. Moreover, even term plans with the return of premium option provide you with the entire premium paid over the policy term on survival.
- Provides for your child’s education
A term insurance plan can ensure that your child’s dreams are fulfilled. If you are no longer around, the insurance plan will provide your child with the much needed financial security and ensure he or she receives a high-quality education.
- Helps to pay off debt
With an insurance plan, your loved ones no longer need to live with a burden of debt. The amount they receive at the time during an unfortunate incident can be used to pay off any outstanding debts.
- Contributes towards achieving your long term goals
If you invest in a ULIP, you can enjoy the dual benefits of investment and insurance. A part of the premium will be invested in the market where you will earn returns in the long run. This will contribute towards achieving your long-term financial goals.
Keep these ten aforementioned uses of life insurance and invest in a suitable plan.