A life insurance policy is an important financial decision for you and your family. More and more people are realizing the need for a life insurance policy. A life insurance policy serves as a great support to your family in case of your unfortunate death. Your family is able to avoid a financial emergency in your absence by taking care of their basic financial needs, from the coverage offered by the life insurance plan.
Now that we have touched upon the “Why you need life insurance”, we also need to learn “How much life insurance” one needs and “When to buy life insurance”.
The “Why, How Much and When to Buy Life Insurance Policy” is an important thought process you need to spend some time on to get the best life insurance policy to suit your needs.
We have put together a simple guide to help you in this decision-making process. So read on to find out more!
Why Does One Need Life Insurance?
A life insurance policy gives you complete peace of mind. You don’t have to worry about the future of your family in case anything unforeseen happens to you. Here are some benefits of getting a life insurance policy:
1. Secures your family’s financial future in your absence: This is the most obvious reason for taking life insurance. Even when you're gone, you want your family to be happy and self-sufficient. Life insurance could save the day for your surviving dependents, whether it's to replace lost income, pay for your child's education, or ensure that your spouse receives much-needed financial security.
2. Helps to keep long term goals going even if you are not there to help: You may have had some long term goals for your family like a dream house, an elite institution for your child’s education, the best car for your spouse and the best health care for your parents. A life insurance policy will ensure that these goals are taken care of even during your absence.
3. Take care of any debts you may have left behind: During your lifetime, you may have accumulated a few debts like home loans, vehicle loans, education loans or even credit card bills. Who will pay these bills once you are gone? Your life insurance policy will ensure that these debts are repaid and your family is not harassed.
4. Comes in handy for retirement planning: There are many ULIPs that serve as a good plan to help with your retirement planning. You could be saving for your retirement while securing your family’s future too. These savings plans allow you to save in small amounts and reap higher benefits at the time of your retirement.
5. Tax saving purposes: Though highly underrated, tax saving is one of the primary reasons that most Indians buy life insurance. The premium you pay for an insurance policy qualifies for a maximum tax advantage of Rs.1.5 lakhs under Section 80C, as well as tax-free proceeds on death or maturity under Section 10 (D) of the Income Tax Act, 1961. For Indians who love evaluating their investment possibilities in-depth, this is a two-fold benefit.
How To Decide How Much Life Insurance You Need To Get?
Life insurance coverage should be determined on your family’s needs considering the future cost of living. Inflation rates are steadily increasing at 5% to 6% year on year. So the future cost of your child’s education or medical costs for your family may be much higher than what it is today. You need to factor in these points while deciding on the life insurance amount you want to purchase.
Here are a few points to help you decide how much life insurance you should get:
1. Factor in all your existing debts and potential future debts: Taking care of debts is one of the key uses of life insurance. So, make a list of all your existing long term debts and also think of any future debts that your family will be needing. It could be debts like an education loan, a car loan or a home loan. Then apply the inflation rate to ensure that there is a sufficient amount to take care of all of them.
2. Calculate the required monthly expenses: You need to make sure that your family is able to take care of their monthly expenses. Your life insurance policy should act as an income replacement for your family. Your insurance payout should be sufficient to replace your salary, plus a little extra to account for inflation. You can begin shopping around for an insurance policy once you've determined the required insurance amount. Many insurers offer online calculators to assist you in determining how much coverage you require.
3. Consider the healthcare costs for elder parents and other family members: Healthcare costs have skyrocketed in recent years. It would serve you well to add this cost to your insurance amount so that your family is able to get the best healthcare when needed. Take into account the number of family members and the average cost of hospitalization per person.
When Is The Right Time To Get Life Insurance?
As Early As Possible!
Yes, the earlier you get it, the cheaper it is going to be for you. Age is one of the primary factors determining your life insurance premiums. So, when you take life insurance at an early age, the premiums are much lower. It also allows you to decide on a higher insurance amount since the premiums are low.
It would also allow your finances to grow over time, allowing you to receive better support when you need it. Because women have a longer life expectancy, premium rates are more appealing to them. Premium tax exemptions make life insurance an appealing financial planning tool. Other tax benefits may be available depending on the policy type. Before selecting the insurance you require, it would help you to contact your agent or review the information booklet.
Conclusion:
Your financial and personal circumstances will determine whether you require life insurance and if so, the amount of coverage you require. Premiums are normally lower, the younger and healthier you are, although older people can still receive life insurance. If you have a mortgage or cosigned school loans with someone else, it may be advisable to carry as much life insurance as you need to pay off your debts plus any interest. The payout on your insurance should be enough to replace your salary plus a bit extra to account for the effects of inflation on purchasing power.
FAQs:
- What are the 3 types of life insurance policies I can get?
Life insurance policy types are many; some of the popular ones are Term Life Insurance, Whole Life Insurance and ULIPs.
- Can I have 2 life insurance policies?
Yes, you can. An individual can have any number of life insurance policies.
- What is the average cost of life insurance premium?
The life insurance premium is determined based on various factors like the insurance amount, your age and the insurance period. Your insurer is the right person to give you the cost of insurance.
- What is the minimum and maximum age to get life insurance?
One can get life insurance as soon as they turn 18, while the maximum entry age differs as per the insurer. In India, the widely accepted maximum entry age is 65.
- Is the life insurance maturity amount taxable?
No, the maturity amount from life insurance is not taxable.