The role of life insurance is to provide life cover and financial support to you and your family, helping maintain financial stability. By contributing to a life insurance policy, you create a reliable source of funds that can be used for long-term goals such as education, retirement planning, or wealth creation. This article explains what is the primary purpose of life insurance.
Why do you need insurance?
Let's understand the importance of life insurance and why do we need it.
- Supports economic growth: Insurance premiums from individuals and businesses are pooled and invested in secure, long-term instruments such as government securities. These investments contribute to infrastructure development and other national projects.
- Generates long-term wealth: Life insurance enables policyholders to pay relatively affordable annual premiums that accumulate over time. If the policyholder passes away during the policy term, the nominee receives the death benefit.
- Provides tax* benefits: Premiums paid and benefits received under life insurance policies may reduce tax* liabilities under Sections 80C and 10(10D) of the Income Tax Act, depending on the policy.
- Supports families in medical emergencies: Health insurance helps ensure that hospitalisation and treatment costs are covered, helping families manage medical expenses effectively.
Types of insurance
The types of insurance are as follows:
Life insurance
Life insurance offers both protection and savings. You pay premiums regularly, and in return, your family receives a death benefit if something happens to you. If you outlive the policy term, you receive the maturity amount. You can also add riders*, such as a critical illness rider*, to increase coverage and financial protection.
Child insurance plan
This plan is specifically designed to secure a child’s future. It combines life insurance with a long-term investment. The funds accumulated can be used for education, higher studies, marriage, or other significant financial requirements. It ensures that the child’s financial needs are met even in the absence of the parent.
Term insurance plan
Term plans offer pure life cover for a fixed period at relatively lower premiums. If the insured person passes away during the term, the nominees receive the sum assured. However, if the policyholder survives the term, no maturity benefit is paid. This plan may be suitable for those seeking high coverage at a low cost.
Health insurance plan
Health insurance covers medical expenses related to hospitalisation, surgery, or treatments. With cashless facilities at network hospitals, you can receive treatment without worrying about payment. It helps ensure financial stability during medical emergencies.
Unit-linked insurance plan (ULIP)
ULIPs offer a dual benefit of life insurance and investment. A portion of your premium provides insurance coverage, while the other portion is invested in market-linked2 funds. Over time, you can build wealth along with life protection. Additionally, ULIPs also offer tax* benefits under Indian tax laws.
Endowment plans
Endowment plans combine life coverage with savings. They provide a lump-sum payout at maturity or to the nominee in case of the insured’s demise. These plans encourage disciplined savings and help achieve long-term financial goals while ensuring protection.
Pension plans
Pension or retirement plans help you build a steady income source for post-retirement years. The premiums you pay are invested, and on maturity, you start receiving regular pension payments. These plans help maintain financial independence in old age.
Auto insurance
Auto insurance, also called motor insurance, provides financial protection against damage or losses to vehicles due to accidents, theft, or natural calamities. It is mandatory for all vehicle owners under Indian law and helps cover repair costs, third-party liabilities, and other expenses related to the vehicle.
Home insurance
Home insurance protects your property from unforeseen incidents such as fire, theft, or natural disasters. It can cover both the structure and contents of your house, ensuring financial protection for homeowners and tenants alike.
What is the purpose of life insurance
The primary purpose of life insurance is to provide financial security for your family or dependants in case of your death. It ensures that your loved ones can maintain their standard of living without facing financial burden.
- Financial protection: Life insurance acts as a safety net, helping dependants manage loss of income and meet daily expenses.
- Debt and expense coverage: The payout can be used to clear outstanding debts, such as home loans, and cover immediate costs, preventing asset loss.
- Income replacement: Life insurance provides a source of ongoing income for your family, supporting their living expenses and future needs.
- Future goal funding: It helps fund long-term goals like children’s education or other significant financial plans without compromising their standard of living.
The benefits of a life insurance policy
The role and importance of insurance in an individual's life cannot be overstated. Here are some of the benefits of a life insurance policy.
- It helps your family fulfil any financial obligations, such as outstanding loans.
- It provides funds to your family to meet the educational expenses of your children.
- It helps compensate for the loss of regular income for your household.
- It enables your family to provide the necessary care and medical attention to your parents or any family members who are ill.
Conclusion
Life insurance offers a financial safety net. It can be a suitable way to safeguard your family’s financial future. It helps cover debts, manage daily expenses, and fund long-term goals like education or retirement. Choosing the right policy ensures your loved ones are protected even in your absence. Life insurance can help you manage life’s uncertainties, knowing your family’s well-being and financial stability are safeguarded.
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