Life is full of surprises. We may never know what is going to happen, but we always wish to prepare ourselves for the worst and protect our near and dear ones. In a country like ours and in a joint family system, people work day and night to earn money and give a good life to the children and elderly. But have you ever wondered what will happen to your family economically if something bad happens to you? It’s here that we come to the concept of financial planning and when we talk of financial planning there is one thing that is necessary in every one’s life. Let’s understand it in detail. What is Insurance and why it is important in our life?
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Sept 24,2026 - Time 10.30Hrs
Understanding the basics
Simply put, insurance is a safety net that protects you against high financial losses. A group of people with similar risk factors contribute to a common cause. When a mishap occurs, they are compensated from the fund. Insurance is nothing but the risk-shifting technique. The insurance policyholder pays a certain amount of premium to the company and the company promises to pay the beneficiary a certain amount if anything unfortunate happens to the policyholder.
Although insurance can’t prevent you from the mishaps occurring in your life; it certainly helps you get back on your feet quickly once losses are incurred. For example, in the Indian context, where a person is the breadwinner of a family of five, insurance helps his family survive a disaster..
Why do we need Life Insurance?
Most of you may be wondering whether you really need it or not? Because most of you may be thinking that there are lot of other areas where you can invest and save more. But you may never know when death may strike. So your dependents may not only face the loss of a dear one but also be pushed into a financial crisis. Especially in today’s world where joint family system is breaking and people are moving towards a nuclear family system. Life insurance has become a need of today’s era.
- Debt cover: Most of the families in urban areas are purchasing house property by taking home loans. So if you have a home loan or any other loan that you have taken for a long term purpose, your family won’t have to sell the property or anything else to pay off the loan.
- Income replacement: Your family can use the money to meet the expenses that you were contributing to when you were alive. It can help them pay the regular groceries and the electricity and gas bill.
- Children’s future: Every parent wants his child to get married in a good family and study in a good college. So a good life insurance policy will help you secure all of this.
- Help to meet future liabilities: You may have various liabilities for which you pay regularly. With the help of the money from the insurance policy your dependents can easily pay off all your liabilities.
- Peace of mind: The knowledge that you have taken a life insurance policy gives you a sense of satisfaction and you can concentrate on other things in life.
Different types of Life Insurance
Life insurance is not a one size fits all proposition. Depending on your requirement there are different types of life insurance policies available and the best way to determine your needs is to ask yourself what kind of financial protection you want for your family.
- Term Insurance: This is the most basic form of life insurance. Term insurance is pure life protection with high sum assured for low premium. A term assurance policy provides a large sum of money to your nominee if you die within the term of the policy. There is no maturity value if you survive the term of the policy. So term assurance is quite pocket friendly suitable for the younger generation.
- Endowment Plans: These plans provide a combination of life insurance protection and savings. Certain percentage of your installment goes towards the life insurance cover and the rest goes towards a guaranteed or non-guaranteed saving bank account. On maturity or death during the term you get paid the sum assured.
- Unit Linked Insurance Plans: These are ULIPs are basically the combination of life insurance cover along with the market linked investment plans. They are a blend of wealth generation and life insurance.
Tax Benefits and related compliances
Most of the time people purchase insurance policy to claim tax deduction before the end of the financial year. As per the New Income Tax Act, 2025, certain tax benefits are available on life insurance policies. For example: The proceeds of the life insurance policy received by the beneficiary on the death of the policyholder shall be exempt from tax under Schedule II(2) of the New Income Tax Act, 2025. The maturity proceeds or surrender value of the policy may also be exempted from tax subject to certain conditions as prescribed under the New Income Tax Act, 2025 regarding the ratio of the annual premium to the sum assured.
Taxation laws are dynamic and change every year. It’s always better to consult a chartered accountant regarding the latest tax rules and regulations before buying any insurance policy.
Points to consider before buying a policy
Before buying any insurance policy it is essential to go through the fine print and know all the terms and conditions. Eligibility, premium, waiting period etc varies from one insurance company to another. All terms and conditions are subject to the policy terms and conditions.
The insurance company will ask you regarding your age, health, habit, occupation etc during the proposal form, so it’s important to be honest while filling up the proposal form. Misrepresenting or not disclosing your health status may result in claim rejection and thus defeat the very purpose of having the life insurance policy.
How to choose the right plan?
It’s important that you choose the right plan as per your needs. Do not buy any insurance plan just because your friend or relative or even the agent recommended you. Think about your personal needs and then buy the life insurance policy. Buy the policy keeping in mind your age, current liabilities and monthly expenses and number of dependents financially.
Take your time in researching and going through the customer reviews, claim settlement ratio of the company and also make sure to ask all the doubts that you have regarding the policy. Insurance is a long term commitment. So it’s important to buy the right insurance policy.
