Life insurance, as the name suggests, is structured to indemnify or cover your life from uncertainties. It’s not an option, but a necessity. Sadly, if you ask 100 people why they buy life insurance, the majority will answer – “to save taxes”.
By Santosh Agarwal
Life insurance, as the name suggests, is structured to indemnify or cover your life from uncertainties. It’s not an option, but a necessity. Sadly, if you ask 100 people why they buy life insurance, the majority will answer – “to save taxes”. We often become random in our approach to buy life insurance products and in order to save a few thousand rupees in taxes, we ignore the real benefits a life insurance plan offers. Though life insurance is a great tax-saving tool but it should not be the only reason for buying it. The primary objective of buying life insurance should be to protect one’s family financially against the uncertainties of life.
The Indian insurance market records a huge increase in insurance premiums during the January- March period. Almost 50% increase in the insurance business is seen around this quarter of the year as salaried individuals try to save taxes on their accounted salary. But it is wrong to overlook the other benefits of life insurance, which are more important in life than just saving income tax.
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Primary Purpose of Life Insurance
Any type of insurance product does bring tax benefits wrapped within but one should not ignore its primary purpose of pure protection. Insurance plans are to be chosen according to your requirements and financial goals so that it can add a lot more to your financial security. These products are designed to put a full stop on your financial worries and help your loved ones cover the immediate expenses in case of any financial exigency. Therefore, if you have a family to support, life insurance becomes virtually obligatory for you.
God forbid if some accident or incident snatches you away from your family, life insurance can turn into a blessing by supporting your family financially, In the case of your death life insurance helps bear the education expenses of your child, provides a constant source of income to your family in case of your untimely death. Therefore, even while trying to save taxes, be wise and smart, don’t diminish the value of life insurance altogether. Life insurance is considered as a financial asset worldwide and hence, you need to plan according to the long-term benefit it will provide you.
Crux doesn’t lie in Tax saving
A life insurance policy makes your financial planning stronger. It is one of the best tools for financial protection. These days, we have become more vulnerable to diseases, accidents, and fatalities than before. Therefore buying a life insurance policy is a smart move for you and your loved ones. However, if you want to save taxes only, you can always invest into other plans, which will give you a higher return.
So, in a haste to save taxes, people invest into the products which aren’t even necessary and compromise on the lower returns. Some extra pennies that you must have tried to save now without planning, might not be useful in any inadvertent situation in future.
We need to draw a line between the life coverage and tax saving as the latter
is the perk of the first but not the sole reason to buy life insurance. Human life cannot be valued nor can be timed and due to this, being prepared is the best thing to do.
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Life insurance is an instrument which keeps you protected for a longer duration. There are different riders also available which provide under which you can get additional protection.
For example, a life insurance policy of Rs.1 cr with annual premium between Rs. 9,000- Rs. 10,000 not only safeguards your life but also provides benefits like a full cover on death, tax-free monthly income for your family and other riders like critical illness and accident cover benefit. This over tax saving is anytime better and reasonable. Life insurance is also capable of covering your other liabilities like housing loan, car loan or the investments at higher risks and by mortgaging their property. for such liabilities, people can cover the risk of their dying before repaying all loans with the help of term insurance which is anyway cheaper than the other types of insurance policies.
We have to keep insurance and investment apart, it would be intelligent to take a life insurance to cover your requirements and invest in other instruments for investment purpose. A life insurance policy with an adequate cover will help you achieve different long-term financial goals and bring protection. They play the role of a long-term contract. Hence keep your investment intact for a long and continuous period of time towards a planned and secure financial future of your loved ones. The government of India has already made provisions for insurance and investments bracket to provide you relief as per your tax slab. Instead of playing around and messing with your investments, you should stay focused according to your requirements and keep in mind both of physical and financial needs.
(The author is Head of Life Insurance, Policybazaar.com)