The notion of life insurance has been generally established, and it is considered a need in the space of financial planning. However, the notion of combining a life insurance policy with investing is a strategy that has yet to be properly understood and appreciated. This combination enables the establishment of a safety net for one’s family while simultaneously building wealth for the future. Essentially, it’s about achieving two goals at once: financial security and wealth creation.
Below, covered are reasons why combining life insurance with investment is crucial –
∙ Financial protection
A life insurance policy works as a safety net for your family in case you die unexpectedly. The scheme pays out the sum assured to your beneficiaries, which guarantees that they remain financially sound. It is a financial shield that protects your loved ones from the debts or the income loss that might occur due to your absence.
∙ Wealth accumulation
When life insurance and investment are combined, a share of your premium is invested in funds that have the potential to generate high returns. Gradually, these funds can create a sizable capital. Therefore, you are not only securing your family’s financial protection but also creating a wealth pool for future needs.
∙ Tax benefits
According to Section 80C, premiums paid towards the life insurance policy can be deducted from the income that is taxed up to Rs 1. 50 lakh per annum. In addition, the proceeds of the policy on maturity or death are tax-free under Section 10(10D), which is a double taxation advantage.
∙ Flexible investment options
A lot of life insurance plans, like ULIPs, permit one to choose where their premium is invested if you go for equity funds (higher risk but the possibility of receiving higher returns), debt funds (lower risk, steady returns), or a balanced fund (a mix of both).
∙ Retirement planning
Some life insurance plans offer a regular income after a certain age. This acts as an annuity, which pays you a constant stream of income throughout your retirement years. Alone, you can manage without relying on anyone else.
∙ Loan options
In a period of financial difficulty, you may be able to get a loan against your life insurance policy. This is an advantage when emergencies happen, and the other loan qualification requirements are hard to meet.
∙ Liquidity
The insurance policies with a savings or investment component allow partial withdrawals after a certain period, and thus, the policyholder can have liquidity during emergencies. It is a way of getting the funds without having to surrender the policy, which means that the life cover is still there.
∙ Constant savings
The consistent payout of life insurance policies creates a saving habit that is steady. With time, the regular saving can help you to accumulate an impressive amount of wealth that will keep you financially stable.
∙ Inflation protection
The investment part of a life insurance, especially the equity section, can earn returns that are higher than the inflation rate. It also maintains the value of money as its purchasing power will not go down due to increasing prices.
∙ Reduced premiums
Getting a life insurance policy at a younger age means lower premiums, as young people are less risky to insurers. Hence, an early investment in a life insurance policy gives the chance to get the benefits of both insurance and investment at a lower rate.
∙ Assured returns
Some life insurance plans like the endowment and money-back plans provide assured returns along with life cover. This feature is a guarantee of your confidence and security in the investment process.
∙ Diversification of risk
The insurance policies that have investment options help you to have a diversified investment portfolio. By blending equity and debt funds, you can lower the risk and increase the profitability at the same time and, thus, ensure financial stability.
∙ Transfer of wealth
Life insurance can also be used for estate planning. This type of policy payout can be used to give your heirs their inheritance gradually and over time, thereby avoiding the likelihood of any conflicts.
∙ Peace of mind
The blending of life insurance and investment does not only guarantee the financial future of your loved ones but also provides a vehicle for wealth creation for you over time. Life insurance with investment not only ensures the financial future of your family but also allows you to accumulate wealth. It is a two-fold advantage, which gives you peace of mind that you have done your best to achieve complete financial planning.
∙ Financial planning over the long term
When you link your life insurance policy to long-term financial goals, such as buying a house, sending your children to college, and planning for retirement, you can go ahead and achieve these goals in a structured manner.
∙ Investment in a disciplined manner
The policyholders must pay premiums regularly which in turn generates a habit of financial discipline. By gradually chipping in smaller amounts over some time, you can amass a substantial amount of money without investing a large sum at once.
∙ Survival advantages
Traditional life insurance policies usually incorporate the survival benefit. If the policyholder lives longer than the policy term, he/she will get a maturity benefit. This can be termed as automatic savings that can later be utilised to realise life goals or retirement corpus. With the use of this strategy, you enjoy both the growth and returns that you can get from it.
∙ Adequate coverage at low cost
Insurance is a kind of insurance which gives a high sum assured at a lower premium. This simply implies that you get a huge financial cover for the family at a much lower price. By putting it together with the other investment plan, it guarantees strong financial protection and growth.
Final thoughts
The combination of life insurance and investment is an absolute necessity. It is a wise step that gives financial stability, unleashes wealth creation, avails tax benefits, and guarantees peace of mind. In the ever-changing and diversified financial market, the insurance and investment combination is a financial instrument of great power which is used for long-term planning and safe family protection. Hence, adopt this two-pronged strategy in your financial planning to get a multi-faceted solution to achieve and preserve your wealth.