Are you buying insurance for the right reasons?

Mar 05, 2018 | 8 months ago | Read Time: 2 minutes | By iKnowledge Team

Life insurance brings a lot more than just tax-saving opportunities. To reap big benefits, learn to use it right.

Many Indians buy life insurance simply to save on tax. They rush into it when the financial year-end looms.

If you, too, are guilty of this, beware! If you focus on maximising your tax savings, you may not pay attention to the amount of insurance you need. You could then end up with insufficient life insurance cover. And this could later have serious financial repercussions for your family.

Therefore, think of getting the right coverage when you buy a policy cover. To do that, let’s figure out the role of insurance:

First, focus on protection

The primary aim of life insurance is simple: it provides financial security to your family in your absence.

Now, death qualifies as a low-probability and high-impact event. You may think of yourself as a young immortal today. But you never know the sudden twist life might take. The true value of life insurance becomes clear only once the unfortunate event has already happened. Imagine that the breadwinner of a family passes away. The family is sure to face both an emotional and a financial loss.

Well, you cannot do much about emotions, but you can ensure that finances don’t bog down your grieving family. That’s where a life insurance comes in. The death benefit should provide for the funeral costs. It should cover any outstanding debts that you may leave behind. Ideally, it should also provide a financial cushion for your family’s short- to medium-term expenses.

A term plan could help you provide a large death benefit for a low premium. For example, Aegon Life’s iTerm Insurance Plan provides affordable life cover until you turn 100.

Second, look at long-term savings

Many people lack financial discipline. This makes it difficult for them to save for retirement and other future goals. Life insurance can help here, too. Unless it is a term plan, you will get a maturity amount if you survive the policy term. You may use the amount to make a down-payment on a house or fund a child’s education, for example.

Third, think about investment

Do you have enough life coverage? Have you already allocated funds for your main life-goals? It is now time to focus on wealth creation.

Unit-Linked Investment Plans (ULIPs) are a good option at this stage. Allocate your investments based on your risk appetite. It helps to be more equity-oriented in the early years. You have fewer financial responsibilities at this stage. So, you can afford to carry a bigger risk burden. But, as you age, you should taper off your equity exposure and increase the dependence on debt funds. This is important to protect your returns as the policy nears maturity.

The bottom line

Before you buy insurance, think about why you need it. If you have no existing life insurance policy, your focus should be on risk protection. Assess your family’s financial and lifestyle needs. This will help you arrive at the right risk cover. Once you have enough life coverage, focus on saving and investing for your life goals. Estimate the future costs and factor in inflation. Then, use an insurance premium calculator to figure out how much premium you can afford to pay. Life insurance can help you be ready for the future. Use it well.

Learn about Aegon Life’s insurance products at https://www.aegonlife.com/insurance-plans


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