Life insurance is often seen as a tool for financial security in case of unforeseen events, but it offers much more than just that. Life insurance has developed into a multifunctional financial tool that offers many hidden advantages, such as wealth accumulation, retirement planning, tax advantages, and even assistance with long-term objectives. Knowing these little-known advantages can help Indian families transform life insurance from just a basic coverage plan into a powerful financial asset. Read the blog till the end to learn about these in detail.
9 Major Hidden Benefits of Life Insurance You Didn’t Know About
Life insurance plans can offer you more than you can anticipate regarding financial assistance. Go through the following points to understand some of the major yet hidden benefits of purchasing a life insurance policy:
1. Accumulation of Wealth
Apart from receiving financial coverage, life insurance can play a meaningful role in the process of building wealth. There are different life insurance plans, such as term insurance plans, endowment plans, ULIPs, and Whole Life insurance plans. Unlike term insurance, which provides pure protection for a specified term, permanent life plans like whole life insurance tend to come with a cash value component, which allows you to withdraw or borrow funds. You can use it during emergencies to get rid of financial burdens.
2. Supplemental Retirement Income
Permanent life policies, like whole life, can be a great way to provide extra income in your post-retirement life. There's borrowing and withdrawal, which can supplement any shortfall in savings and liabilities. The cash withdrawn comes tax-free up to the amount you've paid in premiums. This makes life insurance a helpful supplement to your retirement plan.
3. Tax Advantages
Life insurance policyholders can enjoy several tax benefits. Death benefits are generally tax-free for beneficiaries, and the cash value of permanent policies grows tax-deferred. The premiums paid on life insurance policies for yourself and your dependents are also eligible for tax deductions under Section 80C, up to ₹1.5 lakh per year.
4. Estate Planning
Life insurance policies provide liquidity to pay estate taxes, ensuring the upcoming generation can inherit necessary assets without selling them. This feature mainly benefits policyholders with large estates, such as those who own several assets or businesses.
5. Protection Against Various Situations
Most life insurance plans allow policyholders to add valuable riders, particularly critical illness and disability income riders. Such riders provide an extra layer of coverage, allowing access to benefits if the policyholder is diagnosed with a chronic illness during the policy's term. This applies to scenarios when the policyholder is most likely unable to earn, has become permanently disabled, or needs long-term care. Your investment in life insurance becomes a source of financial strength during such a challenging time.
6. Legacy Planning
You can view life insurance plans as a powerful tool to create a legacy of charity and wellness. You are thus allowed to name a cause or charity as the beneficiary of your insurance policy and create an ever-lasting impact on the lives of people. Life insurance can help you contribute towards a better cause, providing you with a sense of fulfilment. In terms of charitable donations, life insurance can also offer tax benefits.
7. Secondary Source of Income
You can use life insurance plans as the secondary income-generating avenue for your family in case of sudden death. The money may be taken as a lump or a steady income stream. It ensures your absence does not lead them to a sudden financial crisis.
8. Debt Coverage
If you have financial commitments to fulfil, like home loans or personal loans, your absence can create a huge financial strain on your loved ones. You can prevent this by investing in life insurance, ensuring the beneficiaries can repay and fulfil all such commitments without compromising their requirements. This can be possible with the sum assured your dependents will receive.
9. Protection for Business
Being an entrepreneur, you have immense responsibilities regarding your business; the sudden demise might adversely affect the smooth run of the business, causing unimaginable economic hardship. The death benefit from a life insurance plan would ensure that business activities continue even after your demise. Business partners can also use life insurance to fund buy-sell agreements under which the business can continue operating smoothly regardless of any financial setbacks caused by losing a key person. Often, under a buy-sell agreement, the life insurance funds the buyout of the share of the business owned by a deceased partner.
The Bottom Line
Life insurance offers more than just financial security; it brings a whole range of other benefits that can significantly enhance your long-term financial protection. So, if you already have a policy or are planning to buy one, it is important to be aware of all the lesser-known benefits mentioned above to strengthen your overall financial plan.
