We understand the importance of financial security and that is reason by a life insurance plan is an important component of anybody’s financial plan. Managing one’s financial balance sheet is quite similar to managing a company’s financial balance sheet. You should be technically smart enough like a CFO to manage one’s personal financial status. We have our goals and income that help us fulfill them. We have our liabilities and we have to take care of them but stability of income is not always secured, your death or inability to create enough wealth can act as backburner for financial well being. This is where your life insurance plan comes as great help. But before we plan for a life insurance plan we should first try and answer few important questions.
Going by the logic of financial math we should have a cover amounting to ten times of the income that you earn every year. Say you earn Rs.8 lac per year and the income is responsible for taking care of your family’s financial requirement. Going by the financial logic you should at least have Rs.80 lac of life insurance cover to meet this requirement so that in case of your death the money that your family gets as a claim (Rs.80 lac) can at least put in a FD or something similar which gives them 8% interest( Rs.6.4 lac per year ) so that the same can take care of their financial needs. This is in fact the most important question one should try and answer.
Life insurance plans have three types of options a) Pure term plan b) Unit linked plan and c) Traditional plan. Though in all the three options the policyholder get a insurance cover but when it has investment option like in case of Unit linked and Traditional plan you have to pay an extra cost. Term plans only insure that your family gets a sum assured when you are not there so you pay less premium for them but when we consider the case of ULIP or traditional plans since they insure a return on investment on maturity other than the sum assured post your death , the plans are always costly. While buying a life insurance you have should clear objective of protection and don’t try to mix protection with investment as there are much better options.
A lot people buy life insurance plans only with the objective of availing tax benefits. All types of life insurance plans comes with tax benefits, the premium that you pay is considered under Section 80C whereas if there is money received at the end of the term, the money also becomes tax free under Section 10 ( 10D). Now the question is your life insurance buying objective is only tax savings then please try to re-consider your decisions. There are much cheaper options available. Though tax benefit is something normal but you should always have a clear objective of protection before you buy a life insurance plan.