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Life Insurance Policy = Risk Cover + Income Tax Benefit
The tax benefits available on a life insurance policy make it very attractive as a tax saving tool, but it is vital to realize that its chief purpose is providing mortality risk cover. If you are considering taking a life insurance policy for primarily tax purpose then you must make sure that it is in keeping with your long term investment planning objectives and brings you the double gains of risk cover and monetary savings.
A few points to be kept in mind while purchasing a life insurance policy as tax benefit instrument-
Life Insurance OR Others (Mutual Funds / FDs / Stocks)
The decision whether to invest in life insurance or in other financial instruments like mutual funds, fixed deposits, stocks etc. depends on right asset allocation which is arrived at by careful financial planning. Each investment serves to meet different financial functions - life insurance policies provide either only mortality risk cover or both risk cover and investments; while others like mutual fund, stocks and bonds are pure investments but vary from each other in amount of inherent risk and limitations like lock-in period etc..
Equity Linked Saving Schemes + Life Insurance as an Add On
Equity Linked Saving Schemes (ELSS) is a popular investment option because of its tax free status. It enjoys the tax benefits u/s 80 C up to Rs. 100,000 on the money invested, dividends earned and capital gains made when you sell the units. But the recession of 2008 discouraged a lot of investors from market linked investments. In an attempt to get more people to invest in ELSS, fund houses started offering life insurance plans as add on - as an incentive to invest in ELSS.
Absolute Essentials While Life Insurance Shopping
Though there is a general awareness about owning an insurance policy to avail the benefit of protection and investment, many among us are reluctant to purchase one or even discuss the need of insurance in their life. It is not wise being unprotected without an insurance cover. But being insurance poor can land you in similar soup. To strike a perfect balance between the two, assess your needs and choose an affordable insurance product after adequate financial planning.
Why do you need insurance?
