How Does Life Insurance Policy Work?
Life insurance is a financial instrument that is suitable for most individuals as it helps create a backup. Not only can you safeguard your dependents but also create wealth for the future. However, due to a variety of insurance products available in the market, individuals may find it difficult to understand the working. So, today, find out the basics of a life insurance policy and learn some of its key features.
Table of Contents
What Is Life Insurance?
Life insurance is a plan, which offers a risk cover to the policyholder against unfortunate mishaps in exchange for regular premium payments. The insurance provider shall pay out a lump sum death benefit to the beneficiary in your absence to support them financially. But apart from a risk cover, a life insurance policy also promotes wealth creation. Hence, you can choose from the various types of life insurance plans that are customised to fulfil many goals. The different types of life insurance policies are:
- Term life insurance
- Endowment plan
- Unit-Linked Insurance Plan (ULIP)
- Money-back insurance policy
- Whole life insurance
More About Life Insurance
As life insurance policies provide a life cover, while purchasing a plan, you can select the desired sum assured on estimating your family’s expenses. Usually, policyholders calculate the death benefit by considering their debts, mortgage loans, monthly expenses of the family, children’s higher education, etc. In case something were to happen to you during the policy term, this sum assured amount shall be paid out to your family to manage their finances. But if you purchase a life insurance policy with a savings component, a maturity benefit is given to you on surviving the plan tenure. Thus, you can financially secure your loved ones as well as create a corpus to meet future goals.
Features & Benefits of Life Insurance
Here are key benefits of life insurance policies for you as well as your dependents:
Offers Financial Backup
We all need financial backup from the uncertainties in life and thus, many would try saving up some cash. But due to the effect of inflation, you might not be able to save enough to fulfil all your requirements. However, insurance helps you by offering a backup for your loved ones.
Enables You to Create Wealth
While enjoying a life cover, you can also create wealth with the help of other life insurance plans. Based on your life goals, you can choose a policy tenure accordingly and the maturity benefit can go towards buying a house, paying off pending debts, retirement planning, etc. So, you can avail dual benefit with life insurance plans.
Avail Tax Perks
By purchasing an insurance plan, you can avail tax benefits on your premium and the death or maturity benefit. Under Section 80C of the Income Tax Act, you can claim the premiums paid towards the policy up to a limit of INR 1.5 Lakh. The death or maturity payout can be claimed as tax-free under Section 10(10D) of the Income Tax Act. Hence, insurance is a lucrative tax-saving instrument.
Provides Additional Features
Apart from a risk cover and the savings component, life insurance also enables you to take a loan against the policy. In case of a financial emergency, you can get a loan against insurance without any trouble. Also, in a couple of years, if you do not require insurance anymore, you can simply surrender your plan to get the policy value. Therefore, life insurance offers such extra perks to policyholders to achieve their needs.
With this, you must have learnt how a life insurance policy works and its numerous benefits. So, hurry up and choose a suitable plan for yourself to secure your dependents today!