Why You Must Never Leave Financial Independence of Your Family To Chance

7-June-2021 |

COVID-19 has highlighted the value of financial independence in India and all over the world. Imagine the plight of families who have lost their breadwinners to the pandemic unexpectedly. If they don’t have adequate reserves, life will be troublesome for them. Some have had to deal with job losses or pay cuts. The sudden loss/drop in income amidst an economic downturn is not a pleasant experience.

The pandemic remains a threat in the near future. Even after it is gone, one needs to remember the lesson taught by the pandemic – life is unpredictable. This article discusses why everyone needs to take proactive steps to achieve financial independence and not leave it to chance. Let us first understand financial independence in detail.



What is Financial Independence?

You achieve financial independence when you can live your life without worrying about paying for your basic living expenses for the rest of your life without having to work. The benefits of being financially independent also include having enough regular income to meet your and your family’s basic needs if one is diagnosed with a critical illness or there is an untimely death in the family or one decides to leave job and wants to pursue his/her hobby or other non-work related goals.


You can achieve financial independence by investing in assets that generate regular cash flows. Examples of such assets include real estate, dividend-paying stocks, and savings plans. A long-term saving plan from life insurance can help people accumulate funds for the future, generate regular income, and prepare for unexpected events or uncertainties of life.

 

Insurance as a Means of Achieving Financial Independence

 

 

Life insurance provides many benefits for those looking to achieve financial independence. Here is an explanation of the benefits of life insurance.



Sum Assured on Death

A life insurance plan offers a sum assured in the case of an adverse event, such as an untimely death. You can calculate the sum assured based on the financial needs of your family. In general, you can follow rule of thumb that is 200 times of your monthly Income or Household Expense. For example, if someone has household expense of 75,000 per month then they can opt for a sum assured of Rs. 1.5 crore [200 times of monthly expense 75000], his/her family will get this amount in the unfortunate event of their death during the policy term (if 1.5 Crore is kept in Annuity or Fixed deposit @6% p.a. interest rate, then family will get 75000 every month as interest amount).


Regular Income

Regular income plans provide a regular income, irrespective of whether the policyholder faces uncertainty (such as death or critical illness). If anything happens to the policyholder, the family gets regular income. If the policyholder remains healthy during the policy term, they can enjoy the benefits of additional income.

Tax Benefits

You can be eligible for a tax* deduction of up to Rs. 1.5 lacs for premiums paid towards life insurance plans. You can use these savings to make investments to attain financial independence.

Building a Corpus for Retirement

Traditional life insurance plans offered only a sum assured in the case of uncertain events. However, nowadays, policyholders can choose from insurance plans that provide a combination of benefits, including a full refund of the premium paid, along with regular income and sum assured or life insurance plans which provide lumpsum on maturity (including guaranteed# addition and bonuses). Do remember, bonuses in traditional life insurances, once declared becomes guaranteed part of the policy.


Riders1

You can purchase additional benefits, known as riders, along with life insurance at a very nominal cost . An example of a rider includes protection against critical illnesses or disability or hospitalization benefit or waiver of premium in case of disability or critical illness, etc. You can also extend the protection to your family members under your insurance plan.



Scenarios Explaining the Benefit of Life Insurance for Families

For decades, families have benefitted from life insurance through additional income and lump sum payments when faced with uncertain events. Here are a few scenarios that demonstrate the usefulness of life insurance. Note that the figures used are for sample purposes only. Actual amounts may vary based on the applicant’s age and the premiums paid.

Scenario I: Guaranteed# Regular Income

A 35-year old male opts for a regular income plan. He chooses to pay an annual premium of Rs. 1,00,000, and the sum assured on death is Rs. 12,00,000. He has opted for a premium payment term of 10 years and a guaranteed# income term of 25 years.

He pays the annual premium from 35 to 44 (10 years). If the policyholder survives, he will get an annual income of Rs. 85,000 each year from 45 to 69 (25 years). At the end of the policy term (25th year), he also gets back the premiums paid for 10 years (Rs. 1,00,000 x 10 years = Rs. 10,00,000). The sum assured remains the same for the entire policy term (same as premium payment term, i.e., 10 years).



Scenario II: Guaranteed# Regular Income with Critical Illness Benefit

The applicant has opted for a regular income plan with a critical illness benefit till maturity. The annual premium, sum assured on death, premium term, and policy term are the same as the example above. There are two possibilities with this plan. If he doesn’t get diagnosed with a critical illness during the policy term, he will get the same benefits as shown in the example above.

However, suppose, in year 3, the applicant is diagnosed with a critical illness, which takes away his ability to work and earn money. In this event, he will start getting a regular income of Rs. 85,000 per annum from age 37 to 69 (end of the term which is Policy/Premium payment term + Income Term). Also, in the final year, he gets back the premiums paid for the first three years (Rs. 1,00,000 x 3 years = Rs. 3,00,000).

Both these scenarios demonstrate the value of life insurance. The applicant gets multiple benefits of additional income and getting the original premium back. In the event of a critical illness or untimely death, his family can get a much-needed breather.

 

Conclusion

Financial independence provides not only financial benefits but also mental peace. Knowing that you and your family members have coverage against life’s uncertainties can give relief and comfort. However, achieving financial independence requires discipline and commitment. Choosing the right insurance plan and regularly paying premiums is a proven way of gaining financial independence.

When looking for a term plan, you can take the help of tools and calculators to understand your financial needs. Tata AIA Insurance offers a wide range of calculators on its website to help people meet their financial goals. Those looking for a savings plan calculator can use any of the tools available on the website that suit their financial planning needs.  

Get in touch with us today for more details.


People Also Ask Answered in the Article:

What are the benefits of insurance?

How does life insurance help families?




Disclaimer

  • * Income Tax benefits would be available as per the prevailing income tax laws, subject to fulfilment of conditions stipulated therein. Income Tax laws are subject to change from time to time. Tata AIA Life Insurance Company Ltd. does not assume responsibility on tax implications mentioned anywhere in this document. Please consult your own tax consultant to know the tax benefits available to you

  • #Guaranteed Returns/Payouts depend on Plan Option, Policy Term, Premium Payment Term and Age at entry

  • 1Rider is not mandatory and is available for a nominal extra cost. For more details on benefits, premiums and exclusions under the Rider, please contact Tata AIA Life's Insurance Advisor/ branch

  • All Premiums, Charges, and interest payable under the policy are exclusive of applicable taxes, duties, surcharge, cesses or levies which will be entirely borne/ paid by the Policyholder, in addition to the payment of such Premium, charges or interest. Tata AIA Life shall have the right to claim, deduct, adjust and recover the amount of any applicable tax or imposition, levied by any statutory or administrative body, from the benefits payable under the Policy

  • Insurance cover is available under the product.

  • The products are underwritten by Tata AIA Life Insurance Company Ltd.

  • The plans are not a guaranteed issuance plan and it will be subject to Company’s underwriting and acceptance.

  • For more details on risk factors, terms and conditions please read sales brochure carefully before concluding a sale.

  • This blog is for information and illustrative purposes only and does not purport to any financial or investment services and do not offer or form part of any offer or recommendation. The information is not, and should not be regarded as investment advice or as a recommendation regarding any particular security or course of action.

  • Please know the associated risks and the applicable charges, from your Insurance agent or the Intermediary or policy document issued by the insurance company.

  • Every effort is made to ensure that all information contained in this blog is accurate at the date of publication, however, the Tata AIA Life shall not have any liability for any damages of any kind (including but not limited to errors and omissions) whatsoever relating to this material.