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Business News/ Money / Personal Finance/  Last-Minute Tax Planning: How Choosing the Right Life Insurance Policy Can Maximize Benefits

Last-Minute Tax Planning: How Choosing the Right Life Insurance Policy Can Maximize Benefits

Life insurance is essential for financial security and peace of mind. Assess needs at various life stages, such as starting early for lower premiums, ensuring security for spouse at marriage, planning for child's future at parenthood, and considering ULIPs for retirement.

A guide to secure your life at every milestonePremium
A guide to secure your life at every milestone

As the current fiscal year draws to a close, we all focus on reviewing our tax-saving investments. It’s important to understand that, in addition to being a powerful component of last-minute financial planning, life insurance plays a pivotal role in ensuring its stability and peace of mind for the loved ones left behind. Whether you are a seasoned player or a novice in terms of financial decisioning, the last-minute purchase of life insurance should be based on values beyond tax-saving aspects, such as the optimal product, player, and cover from a long-term perspective.

Let us understand how you should assess the said needs at each milestone in your life:

The student stage: Secure your future and ease financial burden

Contrary to common perceptions on the purpose of life insurance at this stage, there are clear values in life insurance, be it proving mental peace to parents by covering hefty education loans or expenses spent on you if something unexpected and grave happens to you. Plus, starting early means you can buy a policy at lower, budget-friendly premiums.

Starting a career: Start early and lock-in more benefits at less premium

As you start your career, there are the added responsibilities of managing expenses in addition to securing future plans that depend on your income. With the benefit of lower premiums at this age, life insurance works as an ideal solution to ensure peace of mind for you and your family, in addition to ensuring financial protection for the same.

Tying the knot: Review your life insurance needs

The milestone of Marriage brings in the excitement of sharing dreams and responsibilities. Life insurance allows you to focus on building a life together without worrying about unforeseen events by ensuring financial security for your spouse. Review your term life cover at this stage - You might need a bigger term life cover, buy an add-on for critical illnesses or accidents, buy a policy under the Marriage Women’s Protection Act (MWPA), or include dependent in-laws. 

Reviewing and enhancing your coverage at this stage is crucial. (The Married Women's Property Act allows the married couple to nominate the wife and/or children, or for the woman to nominate her children as beneficiaries, ensuring that the proceeds of the policy will only go to the beneficiaries and no one else.)

Stepping into parenthood: Saving for child’s education

Parenthood is a stage of an immense journey of joy, satisfaction, and pride. It also comes with additional responsibilities because of the need to plan for a child’s future in terms of upbringing, education, health, and other key milestones in his/her life. You surely don’t want any unfortunate incident in your life to disrupt that well-laid plan for your child. You may need to review and consider adding more products, like savings or investments, to ensure the same.

Golden years of retirement: Ensure comfortable retirement

Retirement can be relaxing, and a well-maintained life insurance plan can provide comfort and security, even if your financial obligations have lessened. Building a retirement corpus with a savings plan or a Unit Linked Insurance Plan (ULIP) in your 40s is worth considering. ULIPs offer the dual benefits of insurance coverage and investment opportunities, making them an intriguing proposition for retirees. It gives you the flexibility to invest in high-risk equity funds that offer higher returns, low-risk debt funds, or a combination of both, based on your risk appetite.

Quick tips to review your life insurance coverage

It’s crucial to review the insurance needs at each of your life milestones, lifestyle, debts, and aspirations. Using online tools like calculators and studying product details and enhancement options do help in making well-informed choices for you that will provide peace of mind and avoid any unpleasant surprises in the future. It’s crucial to consider add-on covers for critical illness and accidental benefit riders that will complement the term covers. 

Before making the decision to purchase, it's also valuable to check the insurer’s credibility in terms of the claim settlement ratio and other relevant information. Leveraging provisions like paying premiums in EMIs help in enhancing affordability, better planning, and execution. Timely nomination ensures peace of mind and a smoother, hassle-free process at the claims stage. Remember, life insurance premiums qualify for tax deduction under Section 80C of the Income Tax Act, 1961.

Insure and secure

While we want to save on our taxes, it is equally important to ensure that our loved ones have more than enough to live off in case of your untimely demise. Life insurance is the cushion we don’t want to talk about but must buy in order to keep our families safe. It cannot replace the emotional devastation, but at least it lets you be at peace by taking care of financial aspects. Even while making a last-minute purchase, ensure it’s the right cover for you and your family.

Dr. Mukund Kulkarni, Head – Underwriting, Aegon Life Insurance

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Published: 01 Mar 2024, 09:01 AM IST
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