Know About The Various Benefits Of A Life Insurance Policy
Life is uncertain. Mishaps like accidents or your untimely death can have a huge financial impact on your family - especially if you're the only earning member. Life insurance is one of the ways through which you can be prepared for such mishaps.
What are the benefits of insurance? Life insurance is the financial safety net you weave for your loved ones. Besides offering financial protection, there are a lot of other benefits this financial safety net can provide. Let’s have a look at the various life insurance benefits.
Benefits Of Life Insurance Policy
👉 Financial Security
A few life insurance policies are specifically designed to offer financial protection to your loved ones. For instance, a term insurance policy will pay a fixed sum of money to your family if you pass away while the policy is active. This money can act as an income replacement and help cover your family's daily expenses and ease financial burdens.
👉 Lifelong Protection
While there are some life insurance plans that expire after a certain period of time, some policies are designed to provide lifelong protection to you and your loved ones.
For example, a whole life insurance policy practically offers a cover for your whole life, i.e., till 99/ 100 years. If you pass away during the policy term, your family will receive the sum assured. And, if you live till 99 or 100 years of age, the sum assured will be paid to you.
👉 Death Benefit
In case you pass away while the life insurance policy is still active, the insurance company will pay a death benefit, i.e., a fixed sum of money to your nominee - provided you pay all your premiums on time.
For instance, say you buy an INR 1 Crore term insurance plan for a duration of 50 years. You pass away in the 30th year. In this case, the insurance company will pay INR 1 Crore to your nominee.
👉 Maturity Benefit
If you survive till the end of the policy duration, some life insurance plans also pay a maturity benefit. This benefit may include the sum assured selected by you at the time of buying the policy and any bonuses accumulated in the policy over all the years.
Depending on the policy terms and conditions, you can choose to receive the maturity benefit -
- As a lump sum amount in one go, or
- In monthly instalments, or
- As a combination of both lump sum and instalments.
Keep in mind that not all types of life insurance policies provide the maturity benefit. Term insurance policies, for example, don’t offer a maturity benefit. Meaning, if you survive the policy duration, you won’t be paid anything.
👉 Survival Benefits
Some life insurance policies may also provide survival benefits that are paid at the end of the premium payment term, i.e., after you’ve finished paying the policy premiums.
For instance, say you buy a Child plan worth INR 10 Lakhs for a duration of 20 years. You choose the 10-year limited pay option - so, you’ll have to complete all your premium payments in the next 10 years. Now, after your premium payment term is over, i.e., after 10 years, the insurance company will pay the survival benefits. You can choose to receive the survival benefit either as a lump sum, in the form of periodic payments, or as a combination of both.
👉 Option To Avail Loan
After a certain lock-in period, you can use some life insurance policies as collateral and avail loans against them. So, instead of taking a loan against properties like your home, gold, etc., you can take a loan against the life insurance policy you’ve taken. This option, too, might not be available with all types of life insurance policies. Term insurance plans, for instance, don’t provide the option of availing a loan against them.
👉 Cash Value
A cash value gets generated in a few types of life insurance policies. The cash value comes into the picture when you start paying the premiums under your life insurance policy. The more premiums you pay, the more cash value gets generated. You can borrow money against this cash value in case of a financial emergency.
For example, say you have a Whole life insurance policy. You have been paying premiums for almost 30 years. You are facing financial problems and are in need of some cash. In this case, you can let your insurer know that you want to withdraw from your policy. The insurer will then tell you how much cash value is generated under your policy, and how much is available for withdrawing. You can withdraw the money accordingly.
👉 Tax Benefits
Tax advantages can be availed on both - the premiums paid as well as the payouts received under the life insurance plan. You can get tax benefits on the life insurance premiums you pay under Section 80C of the Income Tax Act, 1961. And the life insurance payout you receive is completely tax-free as per Section 10(10D) of the Income Tax Act.
These are some of the benefits of life insurance policy. Some life insurance plans offer lifelong protection to you and financial security to your family in your absence. Further, besides paying a fixed sum of money to your nominee on your death, some types of life insurance policies also provide survival and maturity benefits. You can also use your life insurance as collateral, withdraw cash from the policy, and earn tax benefits on both the premiums paid and the payouts received under the policy.
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- A few life insurance policies are specifically designed to provide financial security to your loved ones in your absence.
- A death benefit, maturity benefit, and survival benefits are also offered by a few life insurance policies.
- Some life insurance plans, like Whole life insurance, cover you for your entire lifetime.
- You can use some life insurance policies as collateral and obtain a loan against them.
- In a few life insurance plans, a cash value is generated. You can withdraw cash against this cash value.
- You can also get tax benefits on the premiums you pay and the payouts you receive under Section 80C and Section 10(10D) of the Income Tax Act, 1961.
Aakansha is a Content Ideator and Writer at Beshak. With her easy-to-understand content, she makes insurance simple for everyone. She comes with a strong background in finance and commerce and wants to help families make positive insurance decisions that are good for a lifetime.