In the bustling city of Mumbai, imagine a person who is approaching his 60th birthday. He has worked hard in his career to give everything to his family members. But now he is looking forward to a peaceful retirement. But with this new phase of life came a crucial question: how to ensure financial security in the golden years?
Now, he has two primary options before him — annuities and life insurance. The difference between these financial products is critical, and understanding them would shape the future. Here, we will demystify the basics of annuities and life insurance.
The Life Insurance Expedition
Life insurance is intended to offer monetary guard to the family members and the loved ones of the policyholders. It is a contract where the insurer pays a sum of money to the policyholder’s beneficiaries upon the policyholder’s death, providing financial support during difficult times. If the policyholder survives the policy term, they receive the sum assured as promised by the insurance company. There are various types of life insurance products available, allowing individuals to choose the one that best suits their needs.
Term insurance is the simplest and most affordable, providing high coverage at low premiums. However, it was a pure risk cover—if the policyholder survives the policy term, there would be no payout.
Whole-life insurance is for long-term security. These policies provided coverage for his entire life, coupled with a savings component. Such policies are slightly more expensive but ensure that the policyholder’s family will receive a payout no matter when they pass away.
Endowment plans are a combination of insurance and savings. These plans would pay out the sum assured either on maturity or upon the death of the policyholder, whichever came first. Taking care of the family and building a corpus for future needs were the goals.
Unit-Linked Insurance Plans (ULIPs) offers additional flexibility and benefits. ULIPs combined life cover with investments in equity or debt markets, catering to his risk appetite and investment goals.
Money-back policies provide some payouts at frequent intervals during the policy term, along with a lump sum at maturity, ensuring liquidity at regular intervals.
Premiums paid for life insurance policies were deductible under Section 80C of the Income Tax Act, up to Rs1.5 lakh per year. Furthermore, under Section 10(10D), the maturity benefits are often tax-free. These tax incentives made life insurance an attractive option for safeguarding the family’s future while also enjoying tax savings.
