Buying Life Insurance is an Important Part of Financial Planning

Financial Planning is the management of financial resources through proper planning by taking all the factors into consideration which helps an individual to achieve his financial goals and stability. Financial planning is very much important while planning and achieving both short term and long term goals, whether it is your plan to buy a house, car or admission of your children in reputed school and colleges. A good financial plan helps you to make financial decisions easier and effective.

While discussing future, all of us want to keep the discussion around goals, happiness and we avoid talking about the bad incidents which can occur to us in future as it doesn't make us feel good and same goes with financial planning. We cover needs, goals, inflation, salary, but miss or avoid one of the most important aspects of Financial planning which is risk management. And that's why we don't include life insurance plan in the financial planning .Life Insurance policy is a risk mitigation tool which will keep your financial planning intact.

Let us understand this with an example: -

Mayank (35 years) is married to Priya (31 Years) and they have a son (5 years) and a daughter (4 years). Mayank is the only earning member of the family with a salary of 6 lakh per annum. He made a financial plan just after marriage, which included

• 30 lakhs for education of his son and daughter
• Every month payment for completing his housing, car loans
• 10 Lakhs for daughter's marriage
• 2 Lakhs for his foreign trip after retirement

Mayank was very much happy with his financial plan and was going through it, but one day while returning from office, he met with an accident which forced him to leave his job and incur expenses of hospital and transportation for a long period of time. Even after a long duration of treatment, doctors were not able to save Mayank due to the major injuries during accident. It left the family with a huge amount of hospital bills and an uncertain future. Now his financial planning will be dumped into trash.

Mayank included all the important financial stages of his life but forgot to include the basic factor of financial planning which is risk management. I am sure that you don't want your financial planning to end like the example given above.

Life insurance doesn't only play the key role of risk management, but also helps in your financial planning by following ways: -

Life Cover

Life Insurance policy primarily provides the life cover which is payable to the family in the event of death.The death benefit proceeds will help your family to continue their journey of life happily without any interruptions due to financial crisis suffered by your untimely death.

Form of Saving

Saving is an important part of financial planning, whether it is for retirement, buying a house, car or for any future plan, and Life insurance makes you a disciplined saver with the savings going into the right place.

Form of Investment

Investment is simply the allocation of money with the expectation of profit for future and life insurance serves this purpose also. The sum assured we get is not only the total of premiums which we have paid, but it is added with different types of bonus like reversionary bonus, terminal bonus, percentage of company funds (if chosen), guaranteed additions and all these add on results in higher sum assured or claimed than the total amounts of premium paid. And thus it becomes a good option of reliable and guaranteed profit investment.

Tax Saving Tool

Reducing the tax paid play a big part in financial planning as the money saved from tax can be used in other plans of your life. Choosing a right tax deduction tool is necessary and one of the main features of life insurance is tax exemption. But to avail this facility of the tax deduction your policy cover should be ten times of your annual premium. For example, if you have a policy cover of Rs.5 lakh then you must have an annual premium of Rs.50, 000. Under section 80C, you get tax benefit on the premiums paid, the limit of which has been raised by the government to 1.5 lakh from 1 lakh. Under section 10D, you get tax benefit of tax deduction on maturity, including bonus and other benefits received from the insurance.

Debt payment

Always include your debt, which is in the form of creditors and the ways to pay them while financial planning and life insurance can be used to pay the creditors. You will not have to worry about the debts in case of any mishappening and it allows your family to pay the creditors if you are not there for them.

Life insurance includes the most vital parts of financial planning like saving, investment and debt. And it is very much necessary to look at all the aspects of finance and requirements, whether it's your goal or unfortunate incidents which may occur to you. Life insurance completes the financial plan and makes it useful and protected from all aspects.