Life insurance is often viewed solely as a way to financially protect loved ones after one’s passing. However, it also offers a sense of security and peace of mind during one’s lifetime. Understanding these overlooked life insurance benefits is important for making a better decision when you are buying life coverage.
About Life Insurance
Before diving into the lesser-known financial perks, let’s quickly understand the fundamentals. Life insurance is a way to financially protect your family should something unexpected happen to you. It provides a fixed amount of money called a “death benefit” to specified beneficiaries in case of your untimely demise within the policy’s term. This helps ensure that they don't suffer financial hardship in your absence.
There are many forms of life insurance, but the two primary types are term and permanent insurance. Term life insurance is protection for a specific number of years (10, 20, 30, etc.), whereas permanent life insurance is for your lifetime and builds cash value if you continue making premium payments. To know more about insurance, visit sites like acko.com.
Financial Advantages You May Not Know
Now let's explore some of the lesser-known financial benefits associated with different types of life insurance.
Tax Benefit under section 80C:
You can claim tax deductions on premiums paid on your life insurance policy under Section 80C of the Income Tax Act, 1961. This can help to offset your taxable income up to ₹1.5 lakh in a financial year. This means you not only protect those you love but also save tax!
Borrow money from your life insurance:
Certain types of life insurance, especially permanent life insurance, such as whole life insurance, build cash value over time. If you need a loan, you can borrow against this cash value as a loan rather than a withdrawal. However, it’s important to repay the loan to prevent reducing your death benefit.
Tax-free payouts to beneficiaries:
One of the core benefits of life insurance is that the death benefit payout delivered to designated beneficiaries is generally exempt from income tax under Section 10(10D) of the Income Tax Act, 1961. This provides the family members with the payment they are entitled to, without deductions.
Business continuity funding: Life insurance can be crucial for ensuring business continuity after the unanticipated death of a key person (e.g. founder, owner, etc.). The payout can assist with recovering losses, paying off debts, retaining talent, and easing transitions.
Estate Planning and Legacy Building: Life insurance can be a useful component of estate planning. It provides your family with immediate access to cash to pay taxes or settle loans instead of having to sell family possessions. It can help allocate inheritance more fairly, and even support causes you care about through charitable donations.
As you can see, life insurance can serve as an asset protection tool, supplemental retirement funding source, estate planning vehicle, and more - even while you’re still alive. Beyond ensuring your family’s financial stability, the right policy can offer tax advantages, borrowing flexibility, and potential cash value growth, empowering you to shape your financial future with greater confidence and control.
Conclusion
While life insurance is most often looked at as financial protection for your family, the benefits during your lifetime are extensive as well. From supplementing retirement income to providing collateral for a loan, many types of permanent life insurance can serve multiple financial needs.
Considering the tax benefits, cash value accumulation, and more, the right amount and type of life coverage is a valuable asset. With strategic planning around your broader financial goals, life insurance’s versatility can maximise benefits for you while living and provide financial safety to your loved ones in your absence. The key is finding policy types and coverage levels that serve both present needs and future legacy plans.
Disclaimer: This is a general informational article. While it mentions life insurance, it is not intended to promote or endorse any specific product or provider**
