Why Is Life Insurance Important 2024 ?

Why Is Life Insurance?

Even though it’s the most inevitable aspect of life, talking about death is still taboo in India. Likewise, although being an essential component of life, life assurance isn’t something individuals like to consider getting. Nobody likes to consider a scenario in which either of these are present. However, purchasing life insurance should be your first concern if you find it frightening to think that your dependents may inherit your financial obligations.

According to the Economic Survey 2021–2022, the Covid-19 pandemic increased life insurance penetration in India from 2.82% in 2019 to 3.2% in 2020, bringing it closer to the global average. Even while this is an improvement over past years, it still shows how large a population needs to be covered. This clarifies why life insurance is important.

What is Life Insurance?

As the name implies, life insurance is a contract that covers the policyholder’s life against any type of accident that could cause the insured party to pass away too soon.

The policyholder and the insurance company enter into this agreement. Stated differently, in the terrible event that the policyholder passes away within the policy’s term, the insurance company will be obligated to provide the survivor with a predetermined sum of money in accordance with the terms that were negotiated between the policyholder and the insurer. Thus, it could come in the form of a single lump sum, yearly, or even monthly payments. Why Is Life Insurance

In addition to providing coverage against death, a life assurance plan can, if appropriate add-on benefits are chosen, also protect the policyholder against serious illnesses including cancer and heart disease.

Deciding Human Life Value & Adequate Total Guaranteed:

It’s normal to wonder how much life insurance will support your family financially in the event of your untimely death. The idea of human life value, or HLV, is essential for determining the correct amount guaranteed. Contrary to popular belief, it goes beyond a simple calculation of the additional financial value that an individual brings to the family. Instead, it is a numerical evaluation of both that worth and the debts that must be paid off during one’s lifetime. In addition, other variables including income, inflation rate, and lifestyle modifications are also taken into account before determining the appropriate amount. Why Is Life Insurance

Your age or stage at the time of purchase will determine the amount guaranteed by your term insurance. For example, you should get a policy that offers 20 times your yearly income coverage if you are under 40. In a similar vein, people over 40 should set aside a sum that is 10–15 times their yearly salary.

As an alternative, you can figure out this amount based on your family’s size and spending patterns and choose a cover that is 12–15 times your family’s yearly spending. The aggregators offer an HLV calculator tool if you purchase the insurance online, which will provide you with more clarity by asking you a few basic questions.

Term Insurance: The Purest Form of Life Insurance

Although the basic concept of life insurance is to protect against risk and provide for the family’s financial needs in the event of the policyholder’s passing, there are other variations of these plans available to meet a variety of unique demands.

Term Life Insurance

The most basic type of life insurance is a term insurance policy. In the tragic event that the policyholder passes away, the nominee—typically the spouse—receives the death benefit under such a plan, which may be paid out in full or in installments.Why Is Life Insurance

The policyholder selects the duration of the insurance and the posthumous amount to be awarded to his or her nominee(s). This makes it possible for the deceased’s family to carry on with their current way of life and accomplish significant life objectives even after the death of the family’s breadwinner. The policyholder just needs to make consistent premium payments.

However, as the insurance is a pure risk cover with no investment component, the policyholder does not receive any maturity benefit if they outlive the policy period. Since these are the most reasonably priced life insurance policies on the market, they are quite well-liked. Furthermore, they offer lower prices for greater coverage.Why Is Life Insurance

Term Insurance Riders

Riders relate to optional features or advantages that can be added to an insurance policy for an additional premium expense. Among the most well-liked riders for term insurance are:

Accidental disability benefit rider: As the name suggests, this rider is helpful if the policyholder is injured in an accident and lives, but their condition may be permanent. If there isn’t a consistent source of income for the family, this rider provides financial support.Why Is Life Insurance

Critical sickness rider: A family’s resources can be completely depleted in a matter of months by diseases like cancer or heart problems. Since these illnesses are becoming more common, it is sense to choose this rider, which not only offers a steady income stream for living expenses but also opens the door to receiving better care without having to worry about money.

Waiver of premium rider: This rider helps to maintain the policy by waiving future premiums in situations where the policyholder may not be able to continue it because of a handicap resulting from an accident.

New-age Term Plans

To meet the demands of all consumer segments, the insurance industry is always changing. In order to sufficiently cover more individuals and close the protection gap in India, insurers have launched new-age term plans as the coverage of insurance broadens. These two recently announced plans are examples of that kind.Why Is Life Insurance


Independent Homemakers’ Term Plan

Only when a person contributes income has their financial worth been determined. But that all changed last year when the Supreme Court issued a landmark decision declaring that the idea that stay-at-home moms don’t contribute financially is false and needs to be disproved.

This makes the introduction of standalone term policies for stay-at-home parents earlier in the year a significant development in the term insurance market. The homemakers can now choose this plan and provide coverage for their dependents when they are away, while they were previously limited to coverage through an earning spouse’s policy.Why Is Life Insurance

Saral Jeevan Bima

The lower income group is another market niche that is frequently overlooked by term insurance companies. The affordability aspect is the reason behind this group’s low insurance penetration rate. But as the last two years have shown, anyone can experience an unexpected catastrophe, regardless of their financial situation. The Insurance Regulatory and Development Authority (IRDAI) released regulatory guidelines in 2020 to address this issue and develop the Saral Jeevan Bima standard term insurance.Why Is Life Insurance

The money assured is between INR 5 lakh and INR 25 lakh, depending on demands and affordability. Choosing riders such as accidental death riders or riders with persistent disabilities can improve protection.

Reasons Life Insurance Is the Most Vital Component of Your Financial Strategy

Safeguards Your Family

A life insurance plan relieves you of the first and foremost worry over your family’s future in the event of your untimely death. This is accomplished by a life insurance policy, which guarantees a steady flow of income even when you are not around.Why Is Life Insurance

In essence, life insurance provides your loved ones with the means to be independent and self-sufficient. This implies that there is no need for your family to make any lifestyle compromises. They can use the payoff from the life insurance policy to cover their monthly expenditures or important life objectives like starting a family or getting married.Why Is Life Insurance

Protects Assets:

Everyone aspires to provide their family with nothing but the greatest life. It’s okay if it requires taking out loans. Should everything proceed according to schedule, you should be able to repay the loans on schedule. What happens, though, if things go south and something bad happens? In the event that you are unable to make those EMI payments, it becomes problematic. When the family’s debt piles up, those conveniences could become liabilities. However, with life insurance with the correct protection, you need not worry about this since your possessions will be safeguarded.Why Is Life Insurance

All you have to do is factor in your responsibilities when determining the amount guaranteed. In the event of your death, the family’s payout can be applied towards debt repayment.

Builds Wealth:

Many life insurance plans have an investment component that enables you to save for various purposes in life or even to establish a retirement corpus. For many years, life insurance has actually been the most popular investment option among Indians. Now that sophisticated and polished products like ULIPs are available on the market, people can save for their own and their families’ futures by investing according to their risk tolerance and risk profile.

Protects Against Critical Illnesses:

The environment in which we live has been evolving. Our lifestyles are fairly sedentary since, while living in a fast-paced world, we spend much of our time in front of screens.Why Is Life Insurance

As a result, the prevalence of lifestyle diseases has gone up. These days, protection against serious illnesses is an option for many life insurance policies. Therefore, in the event that the policyholder selects this option and is diagnosed with any of the specified serious illnesses, the insurance provider will be required to provide the policyholder with a lump sum payment. The policyholder may utilise this payout for any purpose they see fit, including paying for medical expenses.

Saves Taxes:

A life insurance policy has tax advantages as well. Under Section 80C of the Income Tax Act, you can deduct up to Rs 1.5 lakh in taxes from the premiums you pay for the policy each year. Additionally, Section 10 (10D) of the Income Tax Act exempts from tax any money paid upon the policyholder’s death.

Bottom Line

The cornerstone of any wise financial plan is life insurance. One can plan and construct their family’s future without worrying about whether they will be there to see it firsthand if they have the appropriate policy and amount assured.Why Is Life Insurance

Should a family member who earns an income pass away, it could have a significant negative impact on their finances if they do not obtain enough life insurance. Thus, it is best to avoid making this error and obtain a life insurance policy as soon as feasible. Obtaining life insurance at an earlier age is always preferable due to the fact that premiums increase with age.

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