Life is a long journey that includes a variety of financial goals and entails many unforeseen circumstances. You will always strive to ensure a brighter and safer future for your loved ones, and having a sound financial plan in place can go a long way towards making it a reality.
Financial planning is a structured approach to determining if your assets or resources are sufficient to meet your financial goals or cover any unanticipated expenses in the future.
Any financial plan would be incomplete without a life insurance policy. As you get older, decide to get married, buy a house, start a family, and retire, life insurance keeps assuming more importance. In this article, we will walk you through the reasons that make a life insurance policy an integral part of a financial plan.
Life Insurance: Why Is It Important In Financial Planning?
A life insurance plan is an ideal financial product to invest in as part of your financial planning. It can provide your loved ones with a financial safety net in case of your unfortunate demise and help you accomplish your life's financial goals. In the following aspects, a life insurance plan is a vital addition to your financial planning:
1. It can secure your loved ones
Life insurance coverage provides financial security for your loved ones. You pay a set premium to the insurer in exchange for insurance against your life. Your family will get financial support in the terrible case of your demise in the form of the sum assured and any additional benefits (if any) specified in your life insurance policy.
2. It can help you oversee long-term objectives
You must carefully consider long-term goals and start early with the financial planning for things like buying a home or a vehicle, sending your kids to college, getting them married, and saving for retirement. You can achieve several long-term financial goals with the aid of a life insurance policy that gives you adequate life insurance coverage and maturity benefits. Selecting the ideal combination of long-term life insurance policies, like ULIPs and endowment plans, can help you accomplish all your financial goals. This will ensure that your investment will continue to grow for a very long time and contribute to a planned and secured financial future.
3. It can give you the benefits of investments and savings
Certain types of life insurance policies, like ULIPs and Endowment Plans, also work well as a retirement and investment tool. The amount insured increases with various cumulative benefits, such as simple/compound incentives, set bonuses, reward benefits, etc., that the insurer gives you over the policy tenure.
4. It can help you manage debts
With a life insurance policy, you can also enjoy the benefits of risk management against debts and loans. A life insurance policy with a policy term equal to the repayment period of the outstanding debt will reduce the likelihood that your loans won't be repaid in the event of your untimely loss. Therefore, your loved ones won't be burdened by the liability of outstanding loans and mortgages after your passing on.
5. It can help you save on tax
Because the premium you pay for your policy is eligible for a tax break under section 80(80C) of the Income Tax Act of 1961, life insurance also serves as a tool for saving on taxes. In addition, according to section 10(10D) of the Income Tax Act of 1961, the insurance proceeds you get from your life insurance policy are also tax-free.
It is not possible to achieve your objectives by just having a static financial plan. Both tracking your progress and remaining on the right path are crucial. Here are five suggestions to aid in creating a successful financial plan:
1. Evaluate your current financial status
Determine your present financial condition to begin creating your financial plan. To do so, you must examine variables like income, expenses, debt, and investments. This will give you a fair idea of the possibilities that your financial situation allows.
2. Set up your financial goals
Determining and separating short-term and long-term goals is integral to financial planning. You can list them to get a better idea of how to chart the timelines of your financial plan. You should consider things like the age at which you plan to marry, have a child, retire, etc.
3. Pick the right investment strategies
Having a financial plan in place can help you make wiser investment decisions. Understanding your cash flow makes it simpler to choose the right investment strategies that will enable you to achieve your objectives. For example, a ULIP (Unit Linked Insurance Plan) can let you earn market-linked returns as per your risk appetite. Guaranteed Income Plans can be another option to accumulate savings if you do not want to take risk and get guaranteed returns.
4. Select the ideal life insurance policy
Once you are aware of your requirements, choosing the right type of life insurance policy that matches your objectives and expectations is critical. For example, a term insurance plan might be ideal for you if you are just looking to get life cover for a limited period. But any other life goal would require a policy with returns, like a ULIP or an endowment plan.
5. Revisit the plan periodically
Once the financial plan is in place, it is paramount that you commit to it. Once created, a financial plan needs to be followed and evaluated constantly. It is vital that you keep a check on it and be aware of the performance of your investment plans and assets. The secret to reaching all your financial goals is constant monitoring of your strategy to check if it needs any changes. Your financial requirements are not going to stay constant, and you must always adjust your plan as per your current situation.
Conclusion
Planning your finances is a significant step toward a better and more financially secure future. Including a life insurance policy in your portfolio is one of the most crucial aspects of financial planning, as it ensures financial stability for you and your loved ones. Numerous incentives are offered by a life insurance policy that can help you reach your financial goals.
Since the premium rates are directly proportional to the age at which the policy is obtained, a life insurance policy would be the most beneficial if you buy it at an early stage. It is a practical and reliable savings strategy that you must continually examine to keep up with your life goals as they change with your life's progression.