Life insurance is essential for everyone

Life Insurance is a contract for payment of a sum of money to the person assured (or failing him/her, to the person entitled to receive the same) either in case of a death of the person insured or after completing the maturity period of the policy. We must accept that all of us, in different walks of life have many needs to meet, families to be taken care of and dreams to be fulfilled. It is possible that we may be able to fulfil our responsibilities towards these during our lifetime.

But will our families be able to maintain a manageable standard of living in our absence? To ensure that a financial protection plan through life insurance comes handy.

Planned properly, life insurance can also provide for the unusual needs like higher education of children or their marriages. The add on benefits (riders) that come with life insurance at a little extra cost, can also take care, to some extent, of the loss of income due to disability or pay for the medical expenses in case of critical illness and can generate higher benefits in case the person assured dies in an accident. Besides, through life insurance one can also plan for regular income after retirement.

Not expensive
It is wrong to believe that one needs to spend a fortune in premiums to get a good insurance cover. Here is a simple example of the value of the insurance cover one needs to take and how much premium one has to pay: Here is a 30 year old person, drawing a gross salary of Rs 6 lakh per annum (Rs 50,000 per month), and has a family of four (wife who does not work and two kids). His monthly household expenses is around Rs 20,000. If this person meets an untimely death, his family will still need Rs 20,000 a month to meet the expenses.

Assuming that this person had taken a insurance policy worth Rs 25 lakh for a 25 years term by paying an annual premium of around Rs 35,000 or Rs 2,916 per month, his family would get Rs 25 lakh on his death. This money, invested at an interest rate of 9 per cent would yield around Rs 19,000 per month. Thus by paying a premium of around Rs 2,900, this person can easily provide financial independence to his family.

Another pertinent point here is that this person being young will have to pay considerably lower premium than someone at the age of 45. This is the primary reason why we should buy life insurance at an early age.

Savings factor
Life insurance is also a good option for savings though one cannot compare an insurance product with other pure investment schemes for the simple reason that life insurance offers life cover and other products don’t.
One should always keep this in mind before comparing other investment options. In life insurance, unlike non-life products, you get maturity benefits on survival at the end of the term. In other words, if you take a life insurance policy for 20 years and survive the term, the part of the amount invested as premium in the policy will come back to you with added returns. In the unfortunate event of death within the tenure of the policy, the family of the deceased will receive the sum assured.

Now that most insurance companies are offering unit-linked insurance plans, investors can get stock market-linked return with life cover.

Insurance as tax planning
Insurance also serves as an excellent tax saving mechanism as the premium paid for self insurance or for the dependents in the family gets deducted from the taxable income.

The Government of India has offered tax incentives to life insurance products in order to facilitate the flow of funds into productive assets. At the peak tax rate of 30 per cent, savings can be substantial.

Planning for old age
Retirement, an age when every individual has almost fulfilled his responsibilities and looks forward to relaxing, can be painful if not planned properly. Have you considered the increasing inflation and taxes?

Will your investment offer you attractive returns under such circumstances? Will it take care of your family after you? An insurance policy will definitely take care of these and a lot more.
source:http://www.deccanherald.com/Content/Feb282008/bannking2008022754589.asp