Insurance Features

Life insurance is one of the important investment options through which one can save tax. However, apart from the tax saving benefit, insurance offers certain other unique benefits which make it an almost essential part of your financial portfolio. Let us take a look of some of these features which give insurance an edge.

    * 1. Goal-oriented plans

Insurance plans are inherently goal oriented which means that these plans are designed for specific long-term goals such as your retirement planning or for your child’s education. This will help you cultivate a disciplined savings pattern which ensures that the money being set aside will go towards the fulfillment of the specific objective. In the absence of such a focused approach, there is a high possibility of savings towards one objective getting utilized for an immediate short-term requirement, thus jeopardizing the long-term goal. Insurance plans are a potent safeguard against such a tendency.

    * 2. Asset allocation

Unit Linked Insurance Plans are a special category of insurance plans which apart from the security of a life cover also give you the benefit of investments that are linked to market performance. This feature ensures that your “Asset allocation” i.e. the split of your investments between debt and equity based instruments can be changed as per your changing needs.

    * 3. Flexibility

Insurance or more specifically Unit-Linked Insurance Plans come with a host of flexibilities which ensure that you will be able to change the contours of your investments as per your needs. These flexibilities include choice of the premium that you want to invest, the amount of life cover you seek, the investment options (with varying debt-equity ratio) available as per your investment profile etc.. This is especially useful for people in the 25-35 year age group, where change in life-stages such as marriage, parenthood or the taking up of a loan are changes all of which will impact their financial profile.

    * 4. The tax edge

Life insurance and health insurance give you the benefit of tax savings under two different tax sections – 80C for Life insurance and 80D for health insurance. While, under Sec 80C you can invest up to Rs.1 Lac as premium in life insurance plans, under Sec 80D, you can pay as much as Rs.30,000 as combined premium for health insurance plans taken in your name and those of your parents (this figure becomes Rs35,000 in the event of the parents being senior citizens). So, you get a combined investment limit of Rs1.35 Lacs in insurance. But, that’s just half the story.

      On maturity, the proceeds of your life insurance plan are completely tax free. This is not the case with some of the other tax savings investments in which the maturity benefits do get taxed.

    * 5. Fund Options

Unit-Linked insurance plans come with an in - built range of fund options to choose from –ranging from aggressive funds (Primarily invested in equities with the general aim of capital appreciation) to conservative funds (invested in cash, bank deposits and money market instruments with aim of capital preservation) so that you can decide to invest your money in line with your market outlook, time horizon and your investment preferences and needs. So if you have a high risk appetite, you should opt for a more aggressive investment option and vice-a-versa

    * 6. Rupee cost averaging

The premiums that you pay towards your ULIP get invested regularly (depending on your frequency of premium payment) at various market levels. Depending on the Net Asset Value (NAV) as on the date of premium payment, a certain number of units of investment get allocated to you. So, as long as you keep paying your premiums regularly, you will keep accruing units at various market levels, thus averaging out the impact of market fluctuations. You no longer have to worry about buying high or selling low because your ULIP would have taken that effect out of the equation.