Will vs Life Insurance
Updated On May 03, 2022
Table of Contents
Life insurance is a contract between an insurance policy holder and an insurer or assurer, where the insurer promises to pay a designated beneficiary a sum of money upon the death of an insured person. Depending on the contract, other events such as terminal illness or critical illness can also trigger payment.
A will or testament is a legal document that expresses a person's wishes as to how their property is to be distributed after their death and as to which person is to manage the property until its final distribution.
Key Advantages of life Insurance Policy in India
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Death Benefits
Life insurance enables individuals to protect themselves and their families, in case of any unfortunate happening in the life of the insurer. The insurer pays an amount equivalent to the sum assured as specified in the contract along with applicable bonuses. This is known as the death benefit.
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Investment Components
Certain whole life insurance policies offer two-pronged benefits of both insurance and investment. While one half of your premium is paid toward insurance, the other half is invested in equity, debt or combinations of both. You get the best of both worlds with a protective covering as well as high returns on your investments. You can make the most of this component by investing in funds that align with your investment horizon and risk appetite. Certain policies allow you to switch between funds as per your evolving goals.
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Maturity Benefits
Life insurance policies can also double as a savings instrument by offering maturity benefits. If the insured survives the policy term and no claims have been made, the total premiums paid are returned at the time of maturity of the policy. In this manner, your life insurance plan can have a savings component, while also offering a protective cover.
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Tax Benefits
Under the umbrella of Section 80C of the Income Tax Act (ITA), individuals can reduce their tax liabilities by investing in specific instruments. Term insurance is one of them. Under section 80C, the premium paid for your life insurance policy is eligible to attain a maximum tax deduction for up to Rs. 1.5 lakh. In addition to this, under Section 10(10D), any payouts you receive from your insurance policy are completely tax-free (provided your premium does not exceed 10% of your Sum Assured, annually). If you have opted for a health-related rider, such as a critical illness or surgical care rider, you can also avail tax deductions under 80D of the ITA.
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Coverage Against Liabilities
To fulfill your dreams and attain your goals, you may have required a certain amount of financial support - in the form of loans, mortgages and other types of debt. Be it student loans or credit card debt, dealing with such liabilities can be a source of great financial strain, without a steady stream of income. While you may have the funds to pay off a part of your loans now, your family may find it difficult to manage such liabilities in the event of your unfortunate demise, owing to the loss of income. Thus, taking a life insurance policy ensures that your family has the financial means to steadily meet your loan and mortgage repayments, even in your absence.
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Riders
You can opt for riders to enhance your life insurance coverage. A number of riders, ranging from Critical Illness to Accidental Total Permanent Disability are available and help protect you and your loved ones against instances wherein your life cover may not come into play.
Key Advantages of Will
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Distribution of Property
Last will ensure that property is distributed as per your wish after death. In case of no will, he/she is said to have died intestate. Then property of such a person is distributed as per the Indian Succession Act, 1925, or any other Act applicable as per the personal religion. Hence, the will is a must if there are any special needs children or if any person in the family needs to be given a larger share of the inheritance.
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Provide Financial Security
In some cases, one or more family members could need more financial security than the other family members due to special needs or requirements. For instance, a special needs child might require more financial resources throughout his/her lifetime, or a child studying abroad might provide special financial assistance for some time. In such cases, Last Will provides more financial resources to a specific person. In case of no will as per the Succession Act, the property of the deceased is divided equally without consideration for special needs or requirements
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Appointing Guardian for Minors
Any parents creating a will for their minor children should mention the Guardian’s name in case of the death of both parents. Parents without a Will neglect their chances for appointing a Guardian for their minor children. Hence, it is advisable for parents of minor children to create a Will naming a person of best interest to act as Guardian.
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Reduce Legal Hassles
There are over 3 crore cases pending before Courts in India, and civil cases can linger up to 20 years in a Court incurring huge legal expenses, time, and effort. Having a Last Will will ensure speedy settlement of property of the deceased and help avoid costly legal expenses or property disputes amongst family members.
Conclusion
Life insurance is an excellent tool you can use if you want to protect those you love most after you pass away. Understanding the role a Beneficiary plays in your policy helps ensure you set up everything properly, so those you’re trying to protect actually get what you intend.
Also read- How Can I Avoid Getting My Life Insurance Claim Rejected
