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Why do you need life insurance?

TeamAckoMay 13, 2024

All of us may have different reasons for buying life insurance. But, the core motivation remains the same - providing financial security to our loved ones. You did hear correctly. Life insurance is a backup plan to give your loved ones financial stability. In addition, there are numerous other advantages of life insurance policy.  

This article will explore why life insurance is essential, its benefits, who should consider it, and other related components.

Why

Contents

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What is Life Insurance?

Life insurance is a type of insurance that pays a lump sum to the policyholder's beneficiary if the policyholder dies unexpectedly. It is a contract between the insured and the insurance company wherein the insurer agrees to pay the sum assured to the insured's beneficiary. 

  • A life insurance policy can provide your family with money when they need it most. The lump sum payment can help your loved ones cover expenses even in your absence. 

  • Certain policies, like whole life insurance and endowment plans, also offer maturity benefits. The maturity benefit is usually paid out when the policy reaches its maturity date, typically at the end of the term. This can provide funds for retirement or other needs later in life.

Let's understand life insurance with an example: 

Rahul is a forty-year-old professional from Mumbai. He invested fifty lakh rupees in a life insurance policy for twenty-five years. He pays an annual premium of thirty-five thousand rupees to secure the family's financial future. It will act as a security for the family in case of his unfortunate demise. Furthermore, this plan will build a corpus for their retirement, too. 

6 Reasons To Buy Life Insurance

You can buy Life Insurance for many reasons. Such insurance offers financial security to family members when they lose you. It may help them pay off debts, deal with day-to-day expenses, etc; here are some solid reasons to buy Life Insurance Policy.

  • Provides financial support to family

For many people, providing financial security to their family after they are gone is the primary reason for buying Life Insurance. Having a lump sum amount in the family's hands will give them the power to deal with many financial issues.

  • Helps deal with debts

Many people borrow loans during their lifetime. It can be a home loan, personal loan, auto loan, etc. It can be challenging for a policyholder's family to deal with such loans when the borrower dies. Life Insurance can help families of policyholders deal with such financial liabilities.

  • Secures child's future

Parents put much effort into securing their child's future. Buying Life Insurance can help parents deal with their child's future expenses. Whether it is to pay for your child's education, tuition fee, wedding, or other needs, the lump sum the family gets as a death benefit can help the surviving parent deal with all these expenses.

  • Create a steady source of income

Families without financial obligations after the policyholder's demise can use the death benefits for investment. Investing in the amount will lead to a steady source of income for the family members, and it can be used for various purposes.

  • Keeps business running

 Many business owners get Life Insurance to keep their business running after they are gone. Any debts or obligations can be covered by life insurance. It keeps the policyholder's business running; hence, their hard work doesn't go to waste in the event of their untimely demise.

  • Helps save taxes

Another incredible reason for buying life insurance is that it helps save taxes under Section 80C of the Income Tax Act 1961. The death benefits are also non-taxable under Section 10(10D) of the Income Tax Act 1961.Note: Life insurance plan tax benefits are available under the Old Tax Regime.

Who Needs Life Insurance?

Here are a few examples of people that may benefit from buying Life Insurance.

  • Parents

Buying Life Insurance certainly makes sense if your children rely on you for financial support. It can ensure that their financial needs are handled if you die unexpectedly. Life Insurance Policy can ensure you will fulfil your duties and responsibilities towards your children even after your demise.

  • Spouses

Many people have financially dependent spouses. If you have a spouse who depends on your income for day-to-day expenses and to maintain their standard of living, buying life insurance is an excellent idea. They can continue living without compromising on the standard of living in case you die unexpectedly.

  • Business owners

Businesses usually come with investment, inventory and sometimes debts. To protect their business and provide solvency, owners must opt for life insurance to let the company run smoothly in case of its demise. Life Insurance can ensure business debts are paid off without closing the business or burdening other partners.

  • Homeowners

Homeowners with debts to pay should go for a Life Insurance Policy. It will help ensure your loved ones are not burdened with paying off your debts after you pass away. Moreover, you will be at peace knowing your children and other dependents will not have to settle your obligations after your death.

  • Legacy purpose

If you have assets that you wish to pass on to your loved ones or any of your favourite charitable trusts, Life Insurance can be a good option for you. Even if you want to fund your relative's child's education or donate a sum to a hospital, your Life Insurance beneficiary can do what is needed based on your wish.

What is the best time to buy Life Insurance?

Buying life insurance will make more sense when you have dependents or financial obligations that would impact your family after you pass away. However, the best time to get Life Insurance is when you are young. 

  • With age, the premium increases, so buying Life Insurance when you are young and healthy can bring down the costs. Moreover, getting approval for coverage might be challenging if you have any existing health issues. 

  • Also, Life Insurance costs will vary based on other factors such as health and occupation. 

For example, the premium for a 30-year-old non-smoker in good health will be less than that of a 55-year-old smoker. Similarly, a skydiving instructor must pay a higher premium than a school teacher for the risk involved in their occupations. Whatever the reason for buying Life Insurance, getting it at a young age with no risky job or harmful habit will be much more affordable.

Types of Life Insurance: Term and Permanent

Life insurance typically has two main categories: term life insurance and permanent life insurance.

1. Term Life Insurance

Protection is offered by term life insurance for a predetermined time. Term life insurance often has no cash value and is the least expensive type. Regarding term insurance, the ACKO Life Flexi Term Plan is a unique plan with unmatched flexibility, offering all-inclusive coverage and a financial safety net for your loved ones.

With ACKO Life Flexi Term Plan, you can ensure your loved ones remain financially stable in unforeseen circumstances. What's particularly appealing about this plan is its remarkable flexibility. You can effortlessly adjust various aspects such as the payout amount, duration, payment frequency, and disbursement method through a single click on the ACKO App. It's convenient and hassle-free! The main benefits include:

Adaptable Policy Tenure

Cost-Effective Premiums

Flexibility in Sum Assured

Will Creation Services

Easy and Simple

Adaptable Payout Options

Digitally-Driven

Essential Riders

ACKO's commitment to customer-centric solutions establishes the ACKO Life Flexi Term Plan as a reliable choice for individuals seeking flexible and comprehensive insurance coverage.

2. Permanent Life Insurance

Lifelong coverage is possible with permanent life insurance, such as whole life insurance or universal life insurance. Most permanent life insurance plans allow you to build up cash value you can access while alive. 

How to Buy a Life Insurance Policy?

  1. Establish your objectives, ascertain the required insurance coverage to fulfil these objectives over time, and evaluate your financial capacity to make payments.

  2. Familiarise yourself with the various types of insurance that can address your requirements effectively.

  3. Upon considering initial premium commitments, potential premium increments, additional death benefits, and accessible living benefits, opt for the insurance policy type (or a combination) that aligns most closely with your needs.

Keep in mind collaborating with a financial advisor can simplify this entire process. They can elucidate the distinctions between policy types, aid in determining the necessary coverage amount, and present potential options tailored to your needs.

Additional Riders Available

  • Critical Illness Rider

A Critical Illness Rider provides coverage if the policyholder receives a critical illness diagnosis. In the case of a covered sickness, this rider pays the policyholder a lump sum payout and usually covers conditions like cancer, heart attacks, and strokes.

  • Disability Rider

If the policyholder is disabled and is unable to work, a disability rider offers coverage. In the event of a covered disability, this rider might pay for the policyholder's normal income and medical and rehabilitation expenses.

  • Term Rider

In addition to the coverage offered by the life insurance policy, a term rider provides coverage for a certain amount of time. This rider can be used to pay for certain expenses, such as a child's education or mortgage payback.

Choosing the Right Life Insurance Policy in India

Many experts regard a comprehensive life insurance policy as the first building block of a consumer's financial planning. Several life insurance policies provide guaranteed returns to meet financial objectives, protect retirement plans, and ensure a steady income stream even in uncertain times. These benefits make having life insurance essential. 

  • Know Which Policy Suits Your Needs: Determine why you need life insurance and what financial objectives you hope to attain. Consider providing financial stability for your family, paying off existing debts, sponsoring your children's education, or establishing a source of income for your dependents in the event of your untimely death.

  • Look for Riders: Consider the availability of riders or add-ons provided by insurers to improve your coverage. Common riders include critical sickness coverage, accidental death benefits, premium waivers, and disability riders. Choose riders that meet your demands and offer complete protection.

  • Compare Premiums and Benefits: Get estimates from many insurance companies and compare prices, coverage, riders, claim settlement percentages, and customer service ratings. Choose a reputed insurer with a high claim settlement ratio and excellent customer service to guarantee a smooth insurance term and claim settlement experience.

  • Evaluate Term Insurance: If your primary goal is providing financial security for your loved ones at a reasonable cost, term insurance may be the ideal solution. Term plans provide greater coverage at lower prices than typical insurance. When selecting a term plan, consider the sum assured, policy length, premium payment frequency, and additional riders (such as critical sickness or accidental death benefit). 

Factors Affecting Life Insurance Premium

Several factors influence life insurance premiums, including:

  1. Age: Age is one of the most important criteria in determining life insurance premiums. Younger people pay cheaper rates since they are regarded as less risky. Premiums often climb as people become older because of an increased risk of health problems and death

  2. Health Status: Your present health status significantly impacts life insurance premiums. Insurers evaluate your health through medical exams, including blood testing, urine tests, and, in certain cases, a medical history. Pre-existing medical issues, family medical history, height, weight, blood pressure, cholesterol levels, and lifestyle behaviours (such as smoking or alcohol use) can influence premiums. Better health frequently leads to cheaper rates.

  3. Gender: Women live longer than males; thus, their life insurance rates are lower. This disparity indicates women's reduced mortality risk.

  4. Occupation and Lifestyle: Your work and lifestyle choices impact life insurance prices. Individuals in high-risk jobs or involved in hazardous activities (such as flying, mining, or deep-sea diving) may pay higher premiums due to the greater possibility of accidents or fatalities. Similarly, dangerous lifestyle behaviours such as smoking, binge drinking, or participating in extreme sports might result in higher premiums.

  5. Coverage Amount and Term: The amount of coverage (sum assured) and the length of the policy term both influence premiums. Premiums often rise with larger coverage amounts and longer insurance durations. Conversely, lesser coverage quantities or shorter insurance durations may result in reduced rates.

Wrapping it up

Life insurance plans provide financial security and peace of mind. Various plans are available to address the needs of different individuals. However, comparing life insurance quotes from multiple reputable providers is an excellent approach. This way, you can search for the finest coverage at a reasonable price. The insurer will calculate your premiums before you sign a life insurance policy. Various factors influence your quotes, including age, gender, health and medical history, coverage amount you choose and type of life insurance.

Frequently Asked Questions (FAQs)

Here are the answers to the given questions related to the why do you need life insurance?

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What is the cost of Life Insurance in India?

The cost may vary based on factors such as type of Life Insurance Policy, age, health, occupation and lifestyle. The more young and healthy you are, the lower the policy premium will be. Also, the cost may vary from one insurance company to another. Hence, it is recommended to compare policies before buying. 

Can you change your life insurance policy?

Yes, it is possible to switch to a different policy or increase/decrease the coverage amount. However, the terms and conditions for policy may vary depending on the insurance provider.

Can you borrow a loan against your life insurance policy in India? 

Yes, borrowing a loan against your life insurance policy is possible. However, the terms and conditions for availing of the loan may vary depending on the insurance provider and policy type.

Is it necessary to disclose pre-existing medical conditions when buying life insurance?

Yes, it is necessary to disclose pre-existing medical conditions when buying life insurance in India. Failing to disclose such conditions may lead to the rejection of the claim in the event of the insured’'s death. It is advisable to provide accurate and complete information while purchasing life insurance.

What are some typical Life Insurance Riders available in India?

Common life insurance riders in India include the accidental death and disability benefit rider, critical illness rider, waiver of premium rider, and term rider.

Is it necessary to include a rider with my life insurance policy in India?

While not obligatory, adding a rider to a life insurance policy in India can offer supplementary protection and assurance for the policyholder and their family. Deciding whether to incorporate a rider should consider the policyholder's unique needs and circumstances.

How long does processing a life insurance death benefit claim typically take?

The processing time for a life insurance death benefit claim varies. The insurance company usually requires relevant documents as evidence to validate the claim and may conduct investigations if any discrepancies arise.

Is it possible to obtain a loan against your life insurance policy in India?

Yes, securing a loan against your life insurance policy is indeed feasible. Nevertheless, the specific terms and conditions for accessing the loan may differ based on the insurance provider and the type of policy.

Disclaimer: The content on this page is generic and shared only for informational and explanatory purposes. It is based on industry experience and several secondary sources on the internet, and is subject to changes.

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