Why life insurance is important?

Life insurance plans are important for several reasons, as they offer a unique combination of life insurance coverage and savings benefits. Here are some key points highlighting their importance:

1. Life Coverage and Financial Security

• Protection: Endowment plans provide life insurance coverage, ensuring that beneficiaries receive a lump sum payment in case of the policyholder's untimely death during the policy term. This financial security can be crucial for the family’s well-being.

• Savings Component: These plans also accumulate a savings portion over time, which can be paid out as a lump sum if the policyholder survives the policy term.

2. Dual Benefit

• Maturity Benefit: Unlike term life insurance, endowment plans pay out a lump sum amount at the end of the policy term if the policyholder survives. This maturity benefit can be used for various financial goals like children's education, buying a home, or retirement planning.

• Death Benefit: In case of the policyholder's death during the term, the beneficiaries receive the sum assured, providing financial stability to the dependents.

3. Forced Savings

• Disciplined Savings: Since policyholders need to pay regular premiums, it enforces a disciplined savings habit, which helps in accumulating a significant corpus over time.

• Long-term Savings: Endowment plans are typically long-term, which encourages policyholders to stay invested and save over an extended period.

4. Risk-Free Returns

• Guaranteed Returns: Endowment policies often come with guaranteed returns, which means the policyholder knows the minimum amount they will receive on maturity. This makes it a low-risk investment option compared to market-linked investments.

• Bonus Additions: Many endowment plans offer bonuses (reversionary and terminal) declared by the insurance company, which can enhance the maturity amount.

5. Tax Benefits

• Tax Deductions: Premiums paid towards endowment plans are eligible for tax deductions under Section 80C of the Income Tax Act, up to a specified limit.

• Tax-free Maturity Proceeds: The maturity proceeds, including bonuses, are often tax-free under Section 10(10D) of the Income Tax Act, subject to certain conditions.

6. Financial Planning and Goal Setting

• Goal-based Planning: Endowment plans can be aligned with specific financial goals, such as funding a child's education, marriage, or creating a retirement corpus.

• Predictable Payouts: The predetermined nature of the payouts helps in better financial planning and goal setting.

7. Loan Facility

• Loan Against Policy: Policyholders can often avail loans against their endowment policies, providing liquidity in times of financial need without having to surrender the policy.

8. Peace of Mind

• Security: Knowing that there is a guaranteed payout either in the form of a maturity benefit or a death benefit provides peace of mind to the policyholder and their family.

In summary, endowment life insurance plans are important because they combine the benefits of life insurance protection with a savings component, providing financial security, disciplined savings, risk-free returns, tax benefits, and a structured approach to achieving long-term financial goals.