Several individuals during their youth consider life insurance nothing more than a tax-saving opportunity. However, with the right insurance, one achieves the financial security that they and their family need. Rather than hastily buying any life policy to save taxes, it is essential to plan well and buy the one that meets your needs. This is because there may be adverse consequences of not buying a life policy on time. Before investing or buying any financial product for the long haul, it is vital to access the ‘why’ behind it. If you are planning to buy life insurance, check if you have the right reasons for it:
Financial protection
What is life insurance? Life insurance is a financial product, where you, as a policyholder, pay premiums to protect your loved ones financially in your absence. Several individuals procrastinate buying a life policy, and later, their loved ones suffer the repercussions of an unfortunate event. When you are young, it is easy to throw things like insurance on the back burner and focus only on living in the present. However, things are different when, eventually, over the years, you take up responsibilities and start a family. Buying life insurance at those later ages is even more difficult. This is because, as you age, your premium increases. Buying insurance at a young age allows you to lock your life cover at a lower premium, which is easy for you to pay over the years.
Why get a life insurance policy?
It is hard to think about how your family will function in your absence. However, it is important to plan for any and every contingency that life throws at you. In case of your unfortunate demise, with no life cover, your family may suffer a sudden loss of income. Things can turn worse if you are the sole breadwinner of your family. Life insurance is needed to have a financial backup in your absence.
When you buy a life insurance policy, you must take into consideration inflation while estimating the needs of your family. This is because the amount of coverage that may seem sufficient now may seem significantly less in the future because of inflation. Also, if you have or are planning to take any loan, consider that as well in your sum assured. This ensures that when you are no more, your loved ones can repay your debt without compromising their lifestyle. It saves them from financial turmoil.
Saving/investing for the long term
You may have long-term goals that usually require a huge amount of funds to be fulfilled. Be it buying your dream house, going on a holiday, saving for your child’s education, or simply creating a retirement corpus. To achieve these goals, individuals must invest with a disciplined approach. Without a system, it is easy to get caught in everyday expenses and postpone your savings. However, this affects you adversely in the long haul when you do not have the funds to fulfil your goals. This is also one reason why you should get a life insurance policy.
There are life insurance policies where a part of the premiums you pay are saved and you also earn a fixed amount of interest on them. When your policy matures, you receive the amount you had saved along with some interest. You can use the same for achieving your financial goals. Nowadays, there are also plans like Unit Linked Insurance Plan (ULIP), where the premiums you pay are partly used to provide you with a life cover and partly invested in funds of your choice. This allows you to invest while being secure with a life cover of the same type. There are several types of funds that a ULIP offers, from which you can choose based on your risk appetite.
You must think about your needs before deciding which type of life insurance policy you want to buy. Take your current stage of life into consideration, along with your plans, to ensure that you make an informed decision. Also, whichever plan you buy, you must read the fine print to avoid any confusion later.
