Role of Life Insurance in modern financial planning: A 2024 guide for families

In today's world, having life insurance is more critical than ever to protect your loved ones amidst changing financial landscapes. A well-chosen life insurance plan ensures your family’s financial future in case of your untimely demise and helps you achieve your long-term financial goals. It helps create wealth for your retirement to provide security for your family. Keep reading to understand what life insurance is, what types of life insurance policies are, and why it is essential to proper financial planning in 2024.

Understanding Life Insurance Policy in 2024

Life insurance provides families with a safety net, helping them manage financial risks that can arise from unforeseen events. However, the individual has to pay monthly, semi-yearly, or yearly premiums to get this benefit from the insurance company. While purchasing a plan, you need to understand the right amount of life insurance coverage to give you complete protection, as each person's needs and circumstances differ.

Types of Life Insurance Policy to Choose

You can select different life insurance policies depending on your needs and ability to pay premiums. The most common types of life insurance policies in India include:

● Term Insurance Plans

You can easily protect your family’s future with a term insurance plan. This plan is designed to cover your nominees financially if something happens to you. Term life insurance plans are not market-linked, and the premiums are comparatively lower than those of other insurance plans.

● Unit Linked Insurance Plans (ULIP)

A ULIP will let you diversify your investment portfolio, allowing you to invest in hybrid funds, equities, bonds and stocks. You can easily increase your wealth creation with this type of insurance plan. Moreover, a ULIP has a 5-year lock-in period, encouraging disciplined investing. You can also switch between various fund options within the plan. It strengthens your investment portfolio and reduces the risk of financial losses.

● Endowment Insurance Plans

If you want guaranteed returns from your invested funds, then endowment insurance plans are ideal. With an endowment plan, you can save regularly and receive a lump sum once the policy matures. These plans provide flexibility and allow you to earn bonuses above the sum insured.

● Money Back Insurance Plans

A money-back insurance plan suits you if you save regularly and seek financial protection and consistent returns. It offers periodic payouts, which is a percentage return of the sum insured. In addition, it provides a lump sum maturity benefit at the end of the policy term. These features make it a valuable tool for proper financial planning, as it helps you meet both short-term needs and long-term goals.

● Child Insurance Plans

Your child’s future should be secured. So, getting a child insurance plan will help you build a corpus for higher education or healthcare. The premium paid for a child insurance plan will be invested in different funds for maximum returns.

Importance of Life Insurance for Proper Financial Planning in 2024

Financial planning is something that you need to start from early on in life. So, getting suitable life insurance will take you a step ahead. You should get a life insurance plan for the following reasons:

1. Investment Portfolio Diversification

Life insurance products, such as ULIPs, Endowment, and Whole life insurance plans, can help diversify your portfolio and contribute to your retirement plans. They can also create wealth for the future, which your family can use in case of an unforeseen situation. Also, a diverse investment portfolio will help reduce volatility and financial risks.

2. Replace Your Lost Income

A life insurance policy can replace lost income in case of an unforeseen situation. It can also provide a regular source of income to cover bills, daily living expenses, and education costs.

3. Helps in Estate Planning

A life insurance policy can create a financial inheritance for the next generation. There is a timely transfer of wealth to the nominee's account, which will protect them during vulnerabilities. Furthermore, if you have more than one heir, then the amount from this policy will be equally distributed.

4. Liability and Debt Management

Your family members may struggle to repay your debts and loans, especially with no earning members. In this case, a life insurance policy can be helpful to clear all your debt.

5. Tax Benefits

The premium you pay towards a life insurance policy is eligible for tax deductions under section 80C. It reduces the tax burden of individual taxpayers and helps you reach financial goals.

Final Thoughts

Life insurance is essential for securing your family’s financial future and supporting your long-term financial goals in 2024. You can protect your loved ones, increase wealth, and manage financial risks by choosing the right type of policy, whether term insurance, ULIPs, or endowment plans.