LIFE INSURANCE

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Financial planning is the process of meeting your life goals through the proper management of your finances. It includes elements of protection, wealth creation, planning for contingencies and emergencies, as well as planning for specific milestones in life. But where does life insurance fit in ?

The fact is, life insurance is very much a fundamental part of a sound financial plan. As you walk through different stages of life, your corpus requirements keep changing and similarly your financial goals - starting from your child's education to your retirement.

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Especially with the shift toward nuclear families, insurance plays a vital role in financial planning in India, offering protection and financial security against various risks. Whether it is life insurance, health insurance, property insurance, Equity Market or retirement plans, insurance products provide individuals and families with peace of mind and the ability to navigate unexpected events. By incorporating insurance into their financial plans, individuals can protect their loved ones, secure their assets, and work towards achieving their long-term financial goals.

It is essential to carefully select insurance policies based on individual needs and consult with us to make informed decisions. Effective financial planning, coupled with the right insurance coverage, can provide individuals and families with the confidence to face future challenges and build a financially stable future.

Insurance – A Critical Component Of Your Financial Plan

Insurance should ideally form a crucial part of your financial plan. You can achieve your financial goals only if you continue saving and investing as per your financial plan. This means that you need to stay prepared for unforeseen eventualities that can derail your financial plan.

Without thorough insurance planning, you can be financially exposed to uncertain life events. Proper planning lets you identify the key risks that may impact your life and choose the insurance policies that cover those risks. This sort of preparation and management of life risks is essential to monetarily safeguard yourself and your family in the long run.

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We have several financial goals at different life stages and come across various unexpected events that require us to prioritise the well-being and security of our loved ones. Accordingly, it is crucial to have a solid financial plan that could help attain financial stability and ensure a brighter future for them. While people often create solid financial plans by setting their goals and investing across diverse asset classes, many of them fail to recognise the importance of including insurance in their personal finance strategy.

Insurance Planning involves the careful selection of best-suited insurance policies that can provide financial protection against unexpected losses to you, your family members, assets, and more. This process typically involves identifying insurance providers and plans that can offer financial support during a crisis. The primary aim of Insurance Planning is to alleviate the financial strain that arises from unforeseen life events. Essentially, Insurance Planning mitigates the financial impacts of unfortunate occurrences, reduces financial stress, and provides peace of mind.

How Does Insurance Planning Help in Financial Planning?

In order to achieve your financial goals, it is essential to have insurance as a critical element of your financial plan. Saving and investing according to your plan is necessary to attain your financial goals, but it is equally important to be prepared for unforeseen circumstances that may derail your financial plan. Various incidents in life, such as a job loss, disability, accident, loss of an earning family member, illness, or other setbacks, can hinder your progress. During such times, having an insurance policy can prove to be beneficial. It can help you preserve your emergency fund and provide the necessary finances in case of an emergency. By having an insurance policy in place, you can ensure that your finances are not overly affected and that your loved ones are protected.

What Are the Benefits of Including Insurance in Your Personal Finance Strategy?

1. Provides Coverage Against Risks:

Insurance functions as a tool for managing risk by preparing you for potential financial losses resulting from unforeseen events such as hospitalisation, accident, death, etc. It essentially helps to mitigate the financial impact of such events.

2. Provides Financial Security:

Insurance policies offer financial security by compensating for any loss that may occur during an emergency. Knowing that an insurance policy will cover such losses can provide a sense of security.

This can enable you to plan your finances and accumulate funds towards your goals without worrying about potential emergencies. Furthermore, having insurance in place ensures that unforeseen circumstances do not deplete your planned funds and remain secure for their intended purpose.

3. It helps with your retirement planning

For most people, the only source of money at the final stage is passive income generated from the wealth and assets collected during the earlier stages of life. However, apart from wealth and assets, life insurance plays a vital role in ensuring a peaceful retired life.The goal should be to retire as early as possible with as much income and wealth-generating assets, that can take care of your financial needs for rest of your life, without any compromises. Just like a term insurance policies support the family of the insured after their demise or Health insurance protects the insured against health-related and medical expenses, Pension plans and annuities can support you with a regular income for golden years post retirement.

4. It secures your child’s future

Bringing a new life into the world comes with a lot more responsibilities as well as financial liabilities. When it comes to securing their child’s financial future, parents need to plan everything out in advance. As a parent, ensuring a stable financial future is perhaps the best gift you can give to your child. With a proper savings or Investment in a good child plan which is designed by the Insurance companies, can help to achieve different mile stone in your child’s life, be it his/her education, marriage or setting up the desired corpus even if you are not there.

5. Provides Tax Benefits:

As you may know, Life Insurance and Health Insurance Plans also provide tax-saving benefits. Premiums for Life Insurance Plans are eligible for deductions under Section 80C of the Income Tax Act 1961, while Health Insurance premiums qualify for deductions under Section 80D. These deductions can help reduce your taxable income by up to Rs 2.5 lakh (Rs 1.5 lakh under Section 80C and up to Rs 1 lakh under Section 80D). If you fall under the 30% tax bracket, this deduction can help you save up to Rs 75,000 in taxes. Moreover, under Life Insurance Plans, the death benefit is entirely tax-free under the provisions of Section 10(10D). Therefore, by investing in Insurance Plans, you can also plan your taxes and receive tax benefits.

6. Provides Peace of Mind:

Insurance Plans provide a sense of security and peace of mind, as you can rest assured that your savings will not be jeopardised in an emergency, helping promote financial independence for you and your family.

What Are the Types of Insurance Plans You Should Consider Buying?

1. Life Insurance

Life Insurance is a crucial element of financial planning, offering families both financial security and peace of mind in the event of a loved one's passing. While there are several types of Life Insurance policies, it is advisable to cover yourself with a basic form of Life Insurance - a Term Insurance Plan that provides maximum coverage at an affordable premium.

A Term Plan provides coverage for a set period called "term." During this term, the policyholder pays regular premiums, and if he/she passes away during the term, the sum insured/death benefit would be paid to their nominee.

Upon your death, your beneficiaries receive a predetermined sum of money known as the death benefit, which can help ease the burden of living expenses and ensure your family's long-term financial goals are achieved even in your absence. Life Insurance coverage also serves as a risk management tool for outstanding debts. If the policyholder passes away, the beneficiary can use a portion of the death benefit to repay any outstanding debt, thereby reducing the financial burden on your loved ones. With adequate Term Insurance coverage, you can rest assured that your family will not face financial difficulties when you are no longer there to take care of their finances.

Take note that, unlike other types of Life Insurance, Term Plans do not come with a savings component and do not accrue cash value over time. The coverage and premiums remain the same for the entire duration of the policy. If the policyholder survives the term, the coverage ends, and no benefit is paid.

2. Health Insurance: (Same will be covered in our Health Insurance Section in detail)

Health Insurance is a type of insurance that offers protection against unforeseen medical emergencies resulting from accidents, illnesses, or injuries. This type of insurance covers various medical expenses, such as hospital bills, consultation fee, medication costs, etc. Health Insurance premiums are typically influenced by three significant factors -- the insured's age, the sum insured, and their health habits.

Individual Health Insurance Plans and Family Floater Health Insurance Plans are the most common types of Health Insurance: Individual Health Insurance Plans provide coverage to only one person. Therefore, if you wish to insure all the members of your family, you will have to purchase a separate policy for each individual. This type of policy is suitable for unmarried individuals and those who are not qualified for Family Floater Health Insurance.

The Family Floater Health Insurance Plan covers the entire family with one policy. By paying a single premium, the coverage is extended to multiple family members. The coverage is shared among all the insured members and can be used by one person or multiple persons in a policy year. The Family Floater Plan is particularly suitable for small families consisting of two adults and up to three children.

Insurance serves as a critical tool to shield you and your family from unforeseen circumstances and provide financial security when needed. Different insurance policies, such as Health Insurance, Life Insurance, Car Insurance, Home Insurance, and Liability Insurance, cater to diverse needs and situations. Incorporating insurance into your financial planning helps mitigate risks, protect your assets and loved ones, and achieve long-term financial goals with peace of mind.

Insurance is not an investment product, rather a wealth protector.We at Wealth360 helps to make you understand the significance of insurance planning in personal finance and why it is a vital component of any financial strategy.