Can you use life insurance as an effective investment tool? Read on to find out.
Many people invest in life insurance thinking that it would be a financial shield to the family in their absence. However, opting for a life insurance plan works as a powerful retirement and investment planning tool as well, since these policies help in building up sizeable cash value during the lifetime.
In the past few years, the insurance sector has become more customers centric and has launched various products that offer a host of beneficial features. Proper usage of these products can serve as a wealth creation tool for investors and at the same time provide the safety net that any insurance product comes with.
Moreover, the rising inflation simultaneously increases the cost of education and other expenditures. Life Insurance is a good way to start saving for your child’s future as it comes with dual benefits of wealth creation and life protection. Additionally, it can also be used for medical treatments, weddings and can also be used as security for loans to your child’s higher education.
As it is rightly said, “You don’t buy a life insurance policy because you are going to die, but because those who love are going to live”.
Life insurance also comes with an important consideration owing to its tax benefits option under Section 80C of the Income Tax Act, 1961 on the premiums that you pay every year. Also, the income earned and lump sum benefits received from these plans are exempted from income tax under Section 10 (10D) of the Income Tax Act, 1961.
Talking about the types of life insurance, the term life insurance is one of the economical picks for an individual and leaves money free for other investments. It offers a considerably good amount of Internal Rate of Returns (IRR) thereby leaving your family or dependents financially equipped in your absence. For instance, Tushar is a 30-years old IT professional who lives along with his parents, he has opted for a term insurance plan of coverage amount 3 crore with an annual premium of Rs 1.7 lakh. Suppose, an unfortunate accident leads to his demise. In this case, even if Tushar had paid only 10 annual payments, his nominee would receive the entire sum assured which makes up to 50.69% IRR. Here, the amount received is much higher than what Tushar has paid.
This way a term insurance plan allows the policyholders to protect their family in the short run and helps them avail the benefits of a risk-free term investment. The returns under this plan never fall below 5 percent except in very rare cases and are tax-free.
Apart from this, one of the long term insurance products which is an effective plan is the Unit Linked Plan (also known as ULIPs) which offers tax efficiency and seamless transfers from debt to equity and back.
One can choose plan based on a whole range of low, medium and high-risk options under the same policy. Here, the consumers also have the flexibility to choose the investment ratio and the sum assured in the annual targeted premium. They can also avail of the benefits of one-time enhancement in their investment portfolios through various top-up options.
Also, those whose wish to get the maximum benefits of long term market-linked growth without the trouble of direct investment in the stock market, ULIPs are a perfect solution.
The bottom line is that life insurance comes with advantages of life protection, tax saving and wealth creation; it is up to you how much you invest as per your affordability or income level.
By Rakesh Goyal, Director Probus Insurance