How life insurance can help build wealth for your future?

It may seem like life insurance is simply an insurance policy for your family in the event of your death, but it is actually one amazing way of accumulating wealth. In addition to the basic idea of having the policy provide funds to beneficiaries after the insured dies, life insurance, especially investment-linked policies like Unit-Linked Insurance Plans (ULIPs), is also a savings scheme to invest for the future and grow that investment in the process.

Here are the ways you can use life insurance as part of your wealth plan.

1. The dual benefits of life insurance

For most people, the key function of life insurance products is to offer financial security to your heirs in the event of your death, though many policies do come with an investment aspect to them. Such a win-win structure is possible due to this duality that policyholders can protect themselves while also having the opportunity to generate wealth.

For instance, life insurance policies like Unit-Linked Insurance Products (ULIP) offer insurance coverage and an option for investing in market-linked funds to grow wealth over a certain period. Retirement and child plans are also offered by insurance companies, which offer the dual benefits of investments and insurance.

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2. Investment-linked Policies: Growing your wealth

ULIPs, or unit-linked insurance policies, are one of the most favoured products used to create wealth. These policies enable you to invest in various types of funds, whether equity, debt, or hybrid, depending on your risk profile and investment objective. Your initial sum invested can increase in value when buying units of these selected funds.

ULIPs have the added benefit of giving life cover to the policyholder; in case of an adverse event, most plans offer either the higher of the sum assured or the accumulated as the fund value to date, not both.

In addition, ULIPs allow you to change your funds periodically and this means that you may be able to align your investment with other changing needs or perceived trends in the market.

3. Tax advantages and the development of wealth

The tax advantages of life insurance as an investing instrument are another important benefit. Premiums paid for life insurance are deductible from taxes up to ₹1.5 lakh per financial year under Section 80C of the Income Tax Act, which lowers your taxable income. However, tax exemptions on policies with annual premiums exceeding ₹5 lakh have been removed for policies issued after 1st April 2023, unless the payout is on death.

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Additionally, under Section 10(10D), maturity proceeds are tax-free only if the annual premium does not exceed 10% of the sum assured for policies issued after 1st April 2012. This enables you to build wealth without being concerned about how taxes may affect your overall returns.

4. Long-term strategy for creating wealth

Offering a long-term investing horizon is one of the main benefits of buying life insurance to create wealth. Life insurance plans like ULIPs urge you to commit for a long time, usually 10 to 20 years, in contrast to traditional investments that could need regular monitoring and active management. Your investments can increase gradually over time with this long-term strategy, taking advantage of market expansion and compounding.

You may make sure that you are accumulating a substantial corpus for your future objectives—whether they be paying for your child’s school, saving for retirement, or establishing a contingency fund for unforeseen circumstances—by sticking to a regular investing schedule.

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