Investing your money in avenues generating sizeable returns is the key to building wealth. As you analyze different investment plans and evaluate their pros and cons, you might come across life insurance as well and wonder if it is a worthwhile investment option.

Here are some pointers to help you decide.

How does life insurance work as part of an investment portfolio?

Life insurance lessens the financial problems your loved ones might run into if an unfortunate event occurs with you. But this is not the only benefit of life insurance. Many life insurance products also offer investment options. You can choose to tap into the stock market’s high return-potential with Unit Linked Insurance Plans (ULIPs) or play it safe and get guaranteed returns with traditional endowment policies.

Here are the many benefits of investing in life insurance:

Ensuring risk cover

Life insurance offers financial protection against life’s uncertainties. In case of an unwanted event, your nominee receives the assured benefits. This can help them meet their living costs as well as fulfil their life goals even in your absence.

Building the habit of saving

You need to pay your life insurance premiums regularly to keep your policy in force. Such disciplined, systematic payments inculcate a habit of savings in you. When you have to pay your insurance premium, you tend to spend less as you want to make sure you have the premium amount ready on time. With budgeting and prioritising your spend, you develop the inclination to save more and build up the funds you need to finance your life’s milestones.

Dealing with financial liabilities

Life insurance serves as a crucial tool for your loved ones to manage any financial liabilities that may arise in your absence. A life insurance policy ensures that your outstanding debts such as loans, credit card dues and other financial obligations are covered. It offers your loved ones the financial support to protect your assets and pay off your liabilities. It acts as a financial safety net for your loved ones and helps ensure that they are financially secured even in case of an unfortunate event.

Helps in achieving long-term goals

Investing in life insurance offers a dual purpose. It offers financial protection but also helps you achieve long-term financial goals. Life insurance policies often come with insurance and investment components that allow you to accumulate funds over time. These accumulated funds can be used to achieve financial goals like a child's higher education or homeownership. Life insurance offers the potential to build savings and plan for long-term financial needs to ensure you live a financially sound and fulfilling life.

Saving on income tax

Life insurance premiums make you eligible for deductions^* on your taxable income. As per Section 80C of the Income Tax Act, 1961, you can avail deductions up to ₹ 1.5 lakh for such premiums. If you add a health-based rider with your life insurance plan, you can get further deductions up to ₹ 25,000 under Section 80D.

Moreover, the proceeds from life insurance are also exempt from taxes^* under the provisions of Section 10(10D). These benefits, not generally found in other investment products, can reduce your income tax liability and effectively increase your savings.

Protecting your money

Many life insurance plans guarantee a sum assured. Such plans keep your hard-earned money safe from market conditions. Many reputed insurance companies also offer bonuses, helping your investments grow. The returns from life insurance plans can help you meet your life goals, such as children’s higher education, or financial freedom in retirement.

You can also borrow against your policy’s cash value in financial emergencies.

Market-linked Returns

ULIPs allow you to switch your funds around different asset classes. In a downturn, you can shift your allocations to debt funds, minimising losses. When the market recovers, you can change over to equities, and see your profits soar. You also have the option to switch to better-performing funds. By remaining patient and continuing investing throughout your policy tenure, you can earn excellent profits.

Retirement Planning

Life insurance plans, such as annuity plans, guaranteed income plans, return of premium plans and others play an important role in ensuring you live a comfortable retirement and help fulfil your retirement goals. Life insurance plans offer a low-risk approach to wealth accumulation that can help you ensure financial stability post-retirement. Life insurance is not only effective as a tool to provide financial protection but also for achieving financial freedom in retirement.

Gain peace of mind

While wealth can give you the lifestyle you want, peace of mind is priceless. Life insurance guarantees this peace. Buying life insurance assures you that your loved ones’ needs will be met in every exigency.

Types of Life insurance products that can act as investments

Using life insurance as an investment secures your family’s future while helping you build wealth over time. Whole life insurance, ULIPs, guaranteed returns plans, money back policies and endowment plans combine insurance coverage with savings. These products help you achieve long-term financial goals and offer tax* benefits alongside financial security for your loved ones.

Whole Life Insurance

A whole life insurance is an insurance policy meant to be in place as long as you live. Typically, insurers offer this policy with a life cover` of up to 99 or 100 years of age. This policy may be suitable for people who may feel that there may be dependents left after them. To give an example, an elderly person who has a child with specific needs, or a spouse with certain health conditions that may require long-term care should consider such a policy. Alternatively, even a person who may want to leave a legacy for their loved ones may also consider such a policy.

Unit Linked Insurance Plans (ULIPs)

ULIPs combine life insurance with investment opportunities, offering life cover` while enabling you to invest in equity, debt or balanced funds^! based on your risk appetite. You can switch between funds to maximise returns. ULIPs can be a smart choice for long-term goals, providing flexibility to adjust investments as your financial goals evolve.

Guaranteed Returns Plan

Guaranteed returns^{^} plans plans combine life insurance as an investment with predictable payouts, ensuring a lump sum at maturity along with life coverage`. These plans are suited for conservative investors who prefer fixed returns over market risks. If you're planning for long-term goals, like securing funds for retirement, using life insurance as an investment through guaranteed returns^{^} plans can provide peace of mind, knowing you’ll have a specific amount when needed.

Money Back Policies

Money back policies provide both life coverage` and periodic payouts throughout the policy term. These payouts can help manage financial goals, offering a steady income stream for important expenses. For instance, a 20-year policy may provide regular payments, which could assist in funding future expenses, such as home renovations or healthcare costs. Using life insurance as an investment through money back policies can provide the flexibility to address evolving financial needs.

Endowment Plans

Endowment plans offer a blend of savings and insurance, providing a lump sum payout at the end of the policy term. These plans are suitable for long-term investors seeking to build a financial cushion for future needs, like retirement. By using life insurance as an investment, you can accumulate funds over time, helping secure your financial future when your regular income may no longer be available.

Conclusion

Life insurance offers a lot of benefits. It safeguards your family against economic challenges in case of an eventuality. It helps you reduce your income tax burden. If used properly, it can also help you achieve financial stability. Therefore, even though it is not a direct investment product, it is an essential tool you should include in your investment portfolio.

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