The role of life Insurance in your Financial Plan

Many people consider life insurance solely as protection against the financial impact of death. But it can play an important role in your life making it an integral component for comprehensive wealth planning, providing leverage for wealth accumulation, wealth preservation, wealth transfer planning and access to liquidity. It could be a value added services in your financial plans. It gives people a tax-efficient way to transfer wealth and to provide cash at a very predictable time. It can enhance wealth accumulation, as well, and provide returns that may compete with other assets. It can help in tax savings. You can draw a loan from insurance policy. Ultimately buying a life insurance is a kind of financial gains in its own way. The article will guide you through some financial benefits of owning a life insurance.

Family Finance Protection

The core benefit of life insurance is that the financial interests of one's family remain protected from circumstances such as loss of income due to critical illness or death of the policyholder. Simultaneously, insurance products also have a strong inbuilt wealth creation proposition. The customer therefore benefits on two counts and life insurance occupies a unique space in the landscape of investment options available to a customer.

Wealth Accumulation

A permanent insurance policy offers insurance coverage coupled with a cash value component that allows you to accumulate money tax free. If the policy is held long term, the potential returns mayexceed some bonds and other vehicles such as money market accounts.

Tax savings

These policies can be useful tax planning tools, because the policy holder is eligible for tax benefits under the Income Tax Act 1961 (Act). Though there are multiple modes for saving tax, life insurance is one of the most effective tax planning instrument. Insurance plans offer tax benefits up to Rs 1.5 lakh under section 80C of the Income Tax act.

Loan against Policy

If one has insurance policy, he or she can take a loan against it from the insurance company. The amount depends on the type of policy and the period for which the policy has been in force. The interest charged, the period of the loan and the terms of repayment are decided by the insurer. The loan is a percentage of its surrender value. In the case of traditional policies, the proportion of the surrender value available as loan may be as high as 90%. If an insurance company provides a loan against ULIPs, the value will depend on the type of fund.

Life Stage Planning

Life insurance helps in life stage planning where you can plan life’s financial goals as per your convenience. It helps you plan for the life stage needs. It not only provides for financial support in the event of untimely death but also acts as a long term investment. You can meet your goals, be it your children's education, their marriage, building your dream home or planning a relaxed retired life, according to your life stages and risk appetite.