Do Bangaloreans See Life Insurance as a Wise Investment?

Bangalore, known as India's Silicon Valley, is a bustling IT hub and home to many of the country's top companies. In addition to its thriving presence of IT firms, startup ecosystems, and multinational corporations, its pleasant climate, green spaces, and cosmopolitan culture have drawn professionals from across India and abroad, making Bangalore one of the world’s fastest-growing cities. However, amidst this rapid development, the cost of living is also rising! This highlights the growing importance of proper financial planning, including considerations for life insurance.

Bangalore, known as India's Silicon Valley, is a bustling IT hub and home...

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What is Life Insurance, and Why Do You Need It?

Life insurance provides financial protection to policyholders’ families in case of unexpected events like the untimely death of the policyholders.

In simple terms, your life policy pays out a lump sum to your nominees if you pass away during the policy term. This financial support helps them maintain their current lifestyle in your absence, as the benefit or money received from your insurer can be used to pay off debts, fund children's education, etc. Here are some key reasons to consider life insurance.

Inflation is real! It hits home directly. If you sit down to plan your monthly or quarterly budget, you’ll notice prices climbing up. With this rising cost in the city, life insurance is critical to secure your family's future.
Hospitalisation expenses can run into lakhs of rupees today. Life insurance policies provide additional riders, such as critical and terminal illnesses, that offer extra financial support to tackle such medical emergencies.
Besides health care, other significant expenses like children's education and home loans require prudent financial planning. Good schools and colleges in urban hubs often have high tuition fees, running into a few lakhs annually.
The high-stress environment and hectic lifestyle also increase health risks. The fast-paced corporate culture and long working hours contribute significantly to work-life imbalance, affecting long-term health. Having term life insurance gives you the peace of mind that your family will be financially secure no matter what.
You can also avail of tax benefits on term life insurance under Section 80C, which provides savings on your annual taxes. Given the rising costs across all sectors, these savings can meaningfully supplement your income.

Tax Benefits on Life Insurance Premiums

Investing in life insurance is highly beneficial; it provides several tax benefits.

Premiums paid towards a life insurance policy are eligible for deduction under Section 80C of the Income Tax Act, up to Rs 1.5 lakhs per financial year. This deduction limit applies collectively to all investments and expenditures under Section 80C, including life insurance premiums.

If your life insurance policy includes riders like Critical Illness, Surgical Care, etc, you can claim further deduction on premiums paid under Section 80D. This deduction can be up to Rs 25,000 or 50,000 depending on whether the policy covers you or your senior citizen parents.

The death benefit or sum assured from a life insurance policy is also tax-free under Section 10(10D) of the Act. This means your nominee would receive the entire claim amount without tax deduction. However, if the claim amount exceeds Rs 1 lakh and the insurer has the policyholder's PAN, a TDS of 1% would be deducted from the payout.

Types of Life Insurance Policies

Term Plans

These policies provide pure financial protection for a period of 5, 10, 15 or 20 years. They offer comprehensive coverage at affordable premiums. The beneficiary receives the death benefit if the policyholder dies within the term.

Whole Life Insurance Plans

These policies provide lifetime protection until age 99. They have a death benefit component to protect loved ones financially, plus a cash value component that builds over time. Premiums are generally higher than term plans.

Unit-linked Insurance Plans (ULIPs)

ULIPs provide life coverage and investment options like equities or debt funds. They have a lock-in period of 5 years. Part of the premiums go towards life coverage, and the remaining goes towards investments.

Endowment Insurance Plans

These offer life insurance coverage and guaranteed returns if policyholders survive the entire policy term. If they pass earlier, the death benefit is paid to beneficiaries.

Pension Plans/Retirement Plans

Pension plans provide lifelong coverage plus guaranteed regular income after retirement to the policyholder or spouse to maintain a lifestyle. Some retirement plans have life cover components, too.

Child Insurance Plans

These offer life insurance coverage to financially secure children's futures, plus guaranteed maturity benefits to help them achieve goals like higher education and marriage.a

Explore the ACKO Life Flexi Term Plan, a unique plan that provides comprehensive coverage at affordable premiums. As life stages change and financial responsibilities evolve, policyholders can easily customise with the ACKO App.

For example, the sum insured can be increased or decreased depending on income and family needs. The policy term can be extended to provide longer coverage as responsibilities grow. Premium payment frequency can be adapted to monthly, quarterly, or annual as cash flows change.

Life Insurance Riders

Ignoring the sobering statistics about road accidents in Bangalore takes a lot of work. While no one likes to think about worst-case scenarios, being practical and preparing for unpredictability can provide peace of mind. Having insurance coverage and additional riders for accidental death or disability can significantly help ease the emotional and financial strain on loved ones during crises.

Even with the best precautions, life sometimes throws difficult things out of your control. Discussing practical preparations isn't meant to be morbid but careful—much like having emergency savings or writing a will. The goal is empowering your families, not feeding fear.

Calculating Insurance Coverage Needs

When calculating how much insurance coverage someone needs, there are a few key factors to consider:

Income replacement

If the insured person passes away or cannot work due to illness or injury, how much income would their family need to maintain their current standard of living? This helps determine life and disability insurance needs.

Debt coverage

If the insured person passes away, how much debt, such as mortgages, credit cards, car loans, etc., would still need to be paid off? Getting enough life insurance to pay those off helps provide for that liability.

Medical costs

Adding a critical illness or accident riders can provide extra funds to cover high medical expenses not handled by regular health insurance.

Family situation

Factors like the number of dependents, the ages of children, and other financial obligations to family members impact specific insurance needs.

Risk factors

Age, health conditions, family medical history, occupation, etc., affect the cost and need for various insurance coverages. Higher-risk individuals generally require higher coverage. Getting life and disability insurance when young and healthy helps lock in lower premium rates.

Choosing the Right Insurance Policy

Understand your needs

Consider your lifestyle, health, dependents, assets, etc., and determine what risks you need coverage for. This will help guide you towards the correct type of insurance.

Compare coverage options

Look at the different insurance companies and policies available and compare coverage types, benefit amounts, exclusions, deductibles, etc. Make sure you understand what is and isn't covered.

Consider the insurance provider's financial stability

Check the financial health and customer ratings of companies you are considering. You want to ensure they can pay out claims if needed.

Know the claim process

Understand how to file a claim and what documentation the provider requires. Quick and hassle-free claims processing is essential.

Pay attention to renewal notices

Review any coverage, pricing or policy changes at renewal each year. This ensures your policy evolves as your needs change over time.

Conclusion

Life insurance represents a crucial investment to safeguard family financial security. Considering factors like surging healthcare expenditures, high costs of quality education, and expanded financial duties, adequate life coverage allows loved ones to uphold living standards even in one's absence.

Term life plans provide comprehensive protection at reasonable premiums. Given the growing obligations and health risks from demanding lifestyles in India's Silicon Valley, the wise choice for Bangaloreans involves securing enough insurance to safeguard those they would leave behind

Frequently asked questions

What is a term insurance plan?

A term insurance plan provides financial protection to your family in case of your untimely demise. If you pass away during the policy tenure, the sum assured will be paid out as a lump sum to your nominee. It is one of the most affordable forms of life insurance.

What are the tax benefits of buying term insurance?

The premiums paid towards term life insurance are eligible for tax deductions under Section 80C up to Rs. 1.5 lakhs per financial year. It helps you save tax to some extent. Also, any death benefit the nominee receives is tax-free under Section 10(10D).

How is term insurance premium calculated?

Term insurance premiums are calculated based on age, health condition, lifestyle habits (like smoking), sum assured amount, policy tenure, and riders chosen.

Can I change my sum assured later during the term?

Yes, most insurers today allow you to increase or decrease your coverage according to your changing needs. You can do so without any medical tests until a certain age.

Can I extend my term after buying the policy?

Yes, you can extend your original policy tenure at defined milestone ages without any medical examination through term extension. ACKO Life Flexi Term Plan allows you to extend your protection as your responsibilities and requirements grow.

What are the tax benefits if my policy has riders with critical illness or disability?

Premiums paid towards riders, such as disability or critical illness riders, are eligible for additional tax benefits of up to ₹25,000 or ₹50,000 under Section 80D.