Life Insurance for You

Life Insurance for you is a way to protect your survivors and dependents against financial hardship. It’s a means of spreading financial risk among a large number of people who pay into a fund or pool. In this the cost is minimized for those who suffer an unexpected misfortune. A life insurance contract or policy is a legal agreement between you and an insurance company that guarantees payment of the face value of the policy, upon death or on survival whichever is earlier.  A valuable feature of life insurance is that the benefit paid to your beneficiary is almost always tax free.

How Much Cover is Enough?

How do you figure out how much life insurance you need?  If you want to know how much insurance cover you should have, the answer is 10 times of your annual income. If your annual income is ten lakhs rupees then the insurance cover should be of rupees one crore. The second way to know is you should ask to yourself that how valuable is your life. For that you should know the current value of future income.  For instance, you should know if some day you didn’t return to your home after work, how much money your dependents should need after your departure. It gives you a picture of the capital your survivors need when you die. It looks at assets that would be available to them, liabilities they would have to deal with, and continuing family needs for income.

1.     Annual Income                                            :           Rs 10 Lac

2.     Your expenditure with taxes                          :           Rs. 2 Lac

3.     Insurance premium                                      :           Rs. 50,000

4.     Total expenditure(Yours)                               :           Rs. 2.5 Lac       (2+3)

5.     How much your family need           

(in your absence)                                         :           Rs. 7.5 Lac       (1-4)

6.     For next 25 years your family

Needs                                                         :           Rs. 1.4 Crore

(This is an example for an ideal young fellow 35 years of age earning ten Lac rupees annually.)

IMPORTANCE OF LIFE INSURANCE.

Life Insurance is of great importance to individuals, groups, business community and general public.

1. Saving for old age. After retirement the earning capacity of a person reduces. Life insurance enables a person to enjoy peace of mind and a sense of security in his/her old age.

2. Under the Income Tax Act, premium paid is allowed as a deduction from the total income under section 80C.

3. Life insurance encourages people to save money compulsorily.

4. Life insurance policy can be used as a security to raise loans. It improves the credit worthiness of business.

5. Life insurance is important for the society as a whole also. Life insurance enables a person to provide for education and marriage of children and for construction of house. It helps a person to make financial base for future.

And the last but not least…

6. Protection against untimely death Life insurance provides protection to the dependents of the life insured and the family of the assured in case of his untimely death. The dependents or family members get a fixed sum of money in case of death of the assured.

Life insurance for you is a major financial commitment. Your good friend or relative may be suggesting a lucrative plan how to be a millionaire. But you should be smart enough to have the deliberation on each aspect of the plan so that you are not trapped into their ponzy plans. You must know your needs first. A qualified life insurance agent can help you work out a more comprehensive financial needs analysis.  It's important to review your insurance needs regularly. As your family or business situation changes, so may your insurance needs. Beware, too, of future inflation and the way it could erode your insurance.