Family Life Insurance
What is a Life Insurance Plan for a Family?
There are many aspects of financial planning that one has to consider in order to safeguard the interests of their loved ones. Right from insurance to saving up for retirement or ensuring a child’s safety, the list seems endless. However, family life insurance plans can take care of many of these factors together.
The biggest myth that has been surrounding life insurance for a long time is that it is only meant for the bread winner of the house. Many families have followed this tradition over the years only to realize that life insurance is a vital financial tool for all the members of the family regardless of their earning capacity.
Family life insurance undoubtedly plays a pivotal role in securing the financial future of the individual and their loved ones. Here are some things you should know about family life insurance.
Which Life Insurance Plan Should You Buy for Your Family?
Picking a life insurance policy for your family can depend on multiple factors like the number of people in your family, whether or not you have children, the chances of suffering from a critical illness, and your other investment and savings plans. There are many different options that one can choose from, discussed below are the three most preferred ones:
Term Insurance
This is one of the most common life insurance plans available to people. Term insurance is a fixed term policy wherein the insured person pays the insurance company a specific pre-decided premium for a particular period of time. In a term insurance plan, you can decide on the duration of the term, the sum assured, and the frequency of premiums as per your requirements. In the unfortunate occasion of the insured person’s demise within the term period, the sum assured (also known as the death benefit) is paid to the family.You can also add specific riders for a critical illness to your term insurance plan. Such riders can provide a financial cushion in terms of health emergencies due to the said critical illness and cover diagnosis and hospitalization expenses.
Retirement / Pension Plans
Retirement insurance plans let you save up funds for the golden years of your life. These are similar to pension plans but also offer the benefits of an insurance policy. In retirement insurance plans, an individual pays a premium to the insurance provider in regular intervals or in a onetime payment. This premium can later be claimed as a death benefit by the nominee on the demise of the insured person.If the insured individual survives the term, they can also claim the benefits in the form of regular installments that can be used as retirement income, or claim a onetime lump sum payment from the insurance company at the end of the policy term. The term period for retirement plans is usually till the age of 60.
Retirement insurance plans offer a lot more than just death benefits. They also let you save for your long-term retirement goals and act as an effective savings tool for the later years of your life.
Child Insurance
Child insurance can be very beneficial in securing your child’s financial future. The funds accumulated in child insurance can be used to pay for the child’s education, wedding, health, etc. In a child insurance plan, parents, grandparents, or guardians can accumulate funds by paying regular or one time premium till the child turns 18. After the child crosses the age of 18, you can either claim the entire corpus or opt for regular installment payments that can provide for the child.Child insurance can also be significantly useful for children in the unfortunate event of the parents’ demise. These plans can provide monetary assistance to children to pursue their education or pay towards major life events like marriage, etc.
Advantages of Family Life Insurance Plan
Below are some benefits of buying life insurance for a family:
Financial Security for Dependents
Life insurance ensures that your family has enough money if something unexpected happens to you. With the best life insurance policy for your family, you can provide a safety net for your dependents that ensures your loved ones can maintain their standard of living and cover essential expenses such as education costs, loan repayments and daily living expenses. It eliminates the need to fall into debt and face financial hardships.
Tax Benefit
Buying the best life insurance policy in India for the family can help you with tax benefits under The Income Tax Act, 1961. The premium paid towards life insurance policies is eligible for deductions up to ₹ 1.5 lakh under Section 80C* of The Income Tax Act, 1961. Additionally, the proceeds received is tax-free subject to the condition prescribed under Section 10(10D)* of The Income Tax Act, 1961. This ensures that your family receives the full sum assured without any tax implications.
Wealth Creation
Family life insurance plan can be used as a tool for wealth creation to secure your family's future financial needs. Many family insurance plans offer an investment component that allows you to save or invest your money in market and non-market-linked products. Some examples include Unit-Linked Insurance Plans (ULIPs) or endowment plans. Purchasing these can help you accumulate wealth over time while ensuring life cover` for your family. These funds can be used to meet various financial goals such as your children's education, marriage expenses, retirement planning, house ownership or any unforeseen emergencies. Some life insurance policies also offer bonuses to enhance the wealth creation process.
Add-on Riders Benefit
Riders are additional add-ons that you can enjoy with your existing family life insurance plan. They provide an enhanced layer of protection and flexibility to life insurance for families. These riders offer coverage for events that may not be covered under the base policy and help enhance the overall insurance coverage.
Factors to consider when Buying a Family Life Insurance Plan
Below are some factors to consider when buying a life insurance plan for a family:
Assess Your Family's Needs
Conducting a comprehensive assessment of your family's financial situation, needs, future goals and potential liabilities is important. Your life insurance coverage must align with these factors to ensure that your loved ones are sufficiently protected in the event of your untimely demise. This can help you determine the appropriate coverage amount that would enable your family to maintain their lifestyle, meet ongoing expenses and achieve their long-term financial goals even in your absence.
Calculate the Coverage Amount
The second step is to determine the coverage amount of your life insurance policy and make sure it meets your family's financial needs in your absence. Typically, financial experts recommend aiming for a sum assured that is at least 10 to 15 times your annual income1. You can take into account factors such as your existing debts, your family's future financial goals, such as children's education or marriage, retirement planning and inflation. Based on your findings, you can arrive at a suitable coverage amount that can suffice for your family's needs and help them maintain financial stability.
Understand Premium Rates
Understanding the premium rates of your life insurance policy is essential for budgeting purposes. It can help you select a policy that fits your budget. It is important to understand that the premium for a life insurance plan is determined based on various factors, including your age, gender, health condition, lifestyle habits, coverage amount and the policy term.
It is advised to compare the premium rates for different policy options and choose the one that offers the desired coverage at a manageable premium that fits your budget. Make sure to assess the affordability of the premium over the policy term to ensure that you can sustain the coverage without any hurdles.
Read Terms and Conditions
It is imperative to carefully read and understand the terms and conditions of the policy before purchasing an insurance plan. The terms and conditions outline crucial details about a plan, such as the coverage, exclusions, inclusions, premium payment terms, claim procedures and other policy features. It can help you understand the scope of your plan. It can also prevent disputes during the claim process and ensure that you fully comprehend your rights and obligations under the policy. Moreover, you can select a policy with complete knowledge, ensuring the plan aligns with your family's needs and expectations.
COMP/DOC/Apr/2024/104/5841
To sum it up
Life insurance can provide the family with sufficient means to cope with tough times in life. They also act as effective investment or savings tools to meet long-term financial goals like retirement, higher education, etc. If you haven’t considered life insurance for your entire family, now could be the right time to start. Not only will it secure their future, but also enable to you save up for your long-term goals more strategically.
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