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Role of Life Insurance In Financial Planning

Updated On Dec 26, 2023

Financial planning is a systematic way to assess if enough assets or savings are sufficient to fulfil financial goals or to satisfy unplanned contingencies. We always work together to ensure a stronger future for our loved ones. Life is a lengthy journey that involves a range of financial goals and unpredictable conditions.

The truth is, that life insurance is a very necessary aspect of a healthy financial strategy. And as you age, get married, purchase a home, develop a family, and get a retirement package, life insurance becomes more important.

Role of Life Insurance In Financial Planning

A life insurance policy would prove to be very effective if it is taken at an early stage since the premiums are strictly proportional to the age at which the policy is purchased. It is a convenient and stable method of saving that needs to be checked regularly to meet the evolving goals of life in light of the evolution of life scenarios.

Why Life Insurance Is Important For Financial Planning?

To provide you with a financial shield from unforeseeable incidents and to meet the financial aims of life, a life insurance policy is an acceptable proposal to engage in as part of your bold financial preparation. A life insurance scheme is a critical foundation in one's financial planning in the following ways:

1. Secure Your Loved Ones

A life insurance policy is a financial backup plan for your loved ones. You pay a fixed amount of premium to the insurer and, in return, you get life insurance against your life in the form of a death benefit. In the event of your unfortunate death, your family will be financially compensated with the amount of insurance plus additional benefits (if any) as per your life insurance policy.

2. Manage Long Term Goals

Long-term objectives, such as buying a car, or home, educating your children, marrying your children and planning for retirement, need to be well analysed and begin financial planning at an early stage. A life insurance package and sufficient life insurance coverage can help you meet various long-term financial targets.

Life insurance policies are a long-term contract that offers a variety of insurance plans to achieve your specific or multiple financial objectives by choosing the right mix of insurance plans. Your investment will remain untouched for a long and continuous period towards a planned and secure financial future.

3. Enjoy Tax Savings

Life insurance also acts as a tax-saving tool, as the premium you pay for your policy is available for tax benefit under section 80C of the Income Tax Act, 1961. The proceeds of the insurance policy you receive from your life insurance policy are also tax deductible under section 10(10)D of the Income Tax Act, 1961.

4. Savings and Investments

Life insurance policy serves as an effective retirement and investing mechanism. With the annual, frequent and systematic payment of premiums, the amount insured grows with different cumulative benefits such as simple/compound incentives, fixed bonuses, reward benefits, etc. over the life insurance period.

5. Manage Debts

When investing in a life insurance policy, the benefits of risk management against debts and loans are covered. A life insurance policy with a policy term close to that of the unpaid debt will minimise the possibility of failure to repay loans in the case of an untimely loss. So, after your demise, the burden of unpaid loans and mortgages will not be carried on to your loved ones.

Take Away

Financial planning is a big step towards a happier and more stable future. Having life insurance coverage as part of your financial plan is a step towards safeguarding the future of your loved ones.

A life insurance policy provides a set of incentives to achieve your financial targets with a disciplined outflow of funds in the form of a premium.

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