Life Insurance helps you stay financially fit!

Indians are known to be ‘aggressive’ savers. Investments are typically made into real estate and gold. However, in the last few years with the maturity of investors and positive returns from equity markets, investors have flocked to market-linked instruments like mutual funds and life insurance. But, even now many people just ‘save’, for their financial well-being it is necessary to approach goal-based investing and life insurance is only such product that can take care of both insurance as well as protection need.

There are multiple products like term plans, endowment plans; unit-linked insurance plans and retirement plans that can help investors being financially fit. Life insurance plans can not only create wealth in the long term but also help to save tax and get a tax-free corpus at maturity, unlike mutual funds where long term gains are taxed at 10%.

Insurance can play an important role in goal-based planning of an individual. We all buy insurance to protect from financial loss. Term plan is an insurance product which will help policyholder mitigate risk and family member will get sum insured if the policyholder passes away.

The biggest advantage of this plan is that they attract a very low premium and investors can get very high insurance coverage. This is one of the plans which are needed in every financial portfolio of any investor.

However, there are many investors prefers buying a plan where they get money back from the insurers and get tax benefits. For them, endowment or money back plans are ideal as they get guaranteed returns with a life cover.

If god forbid, policyholders, die before maturity, the nominee will get full sum assured. If policyholders survive at maturity, he will get sum assured with some bonus.

This is one of the products that are appropriate for people who are looking at specific goals like children’s education and their marriage or building a home.

Investments under such plans qualify for deduction up to Rs 1.5 lakh under Section 80C of Income Tax Act. This policy is for the people who have specific life goals in mind and don’t want to take undue risks in equity markets.

ULIPs

Many people out there want to take the risk and create long term wealth-for them ULIPs are the best options available in the current scenario. ULIPs offer policyholders with an option of having investments along with insurance. There are multiple benefits of investing in ULIPs like better taxation, switching from equity to debt and vice-versa and having a balanced portfolio.

For example, if invested in equity-linked saving schemes (ELSS) of mutual funds, investors have an option to invest only in equities, but if a conservative investor wants to invest in the balanced portfolio he can look at ULIPs. Once you have invested in ELSS, money gets locked-in for three years and there is no way you can exit or re-balance your portfolio.

But in ULIPs, if investors are not comfortable with the valuation of equity markets, they can switch their portfolio to debt and when markets are low, they can shift money back to equity-without paying any charges.

Even taxation is better in ULIPs than in ELSS schemes as long-term capital gains taxable at 10%. Whereas for ULIPs, at maturity total amount received by policyholder will be completely exempted from tax under section 10 (10D). Under section 10 (10D) of the Income-Tax Act, if the sum assured in a life insurance policy is at least 10 times the annual premium, then proceeds from the policy-maturity or early surrender are tax-free.

But Ulips comes with a lock-in period of five years. Apart from having all the plans, policyholders can also get add-on covers like critical illness or accident policy which can be beneficial in the long run for them.

There are plans even for the retirement plans or both aggressive investors as well as conservative investors. Aggressive investors can look at investing in a unit-linked pension plan, which works like ULIPs but has a long-term investment horizon.

Overall insurance can take care of all the need of policyholders for their lifetime, be it covering their life, having a market-linked portfolio or investments without equity risks and having a guaranteed returns-everything can be taken care by investing in life insurance products. Life insurance can play a significant role in not just insuring the lives of policyholders but also create long term wealth.

(The writer is Director, Probus Insurance Broker Ltd.)