Financial planning is an important aspect to consider for managing one’s finances to maintain your needs, goals, and lifestyle. A well-designed financial plan helps you fulfill your dreams, like buying assets and creating a safety net to cope with future uncertainties.
Life insurance plans are an essential part of a financial plan that helps secure your loved one’s future. You can choose from various life insurance plans, like a basic term insurance plan, an endowment policy, ULIPs, and more.
In this article, we will discuss the role of life insurance and the importance of insurance in financial planning.
What is Life Insurance?
Life Insurance is a legal contract between the individual and the insurance company in which the insurer receives the premium. In exchange, they provide financial coverage in case of sudden demise of the insured. That death benefit is paid to the policyholder’s family or nominees, which gives them financial protection and helps them to pay the debt, mortgages, and other outstanding expenses.
Role of Life Insurance in Financial Planning
- 1. Safety against the financial risk
Life is uncertain, and any financial risk can arise without any notice, such as the sudden demise of the policyholder, critical illness, disability, etc. In such cases having life insurance helps you to meet those expenses and obligations.
- 2. Regular Income
The death and the disability of the breadwinner will significantly impact the family income, which is important for survival. In such cases, life insurance will help the beneficiaries have a regular income stream, even if the sole breadwinner dies.
3. Retirement Income
Some of the best life insurance policy riders allow the policyholder to get a steady income stream after retirement. A life insurance policy can play a role in retirement financial planning by giving a financial umbrella to the policyholder and their family even after retirement.
- 4. Estate Planning
Estate planning is preparing for a person’s future incapacity or death by anticipating and making arrangements for the management and distribution of the person’s estate while the person is still alive. Life insurance is an important component while doing estate planning and helps to cover Estate taxes and other costs related to transferring assets to the next generation. Additionally, it can aid in ensuring that the policyholder’s assets are dispersed by their preferences.
- 5. Tax benefits
Life insurance also provides tax benefits to the policyholder and their beneficiaries as the premiums paid on the life insurance plan and the benefits paid to beneficiaries are tax deductible and exempted, respectively.
In addition, specific life insurance policies cash values increase tax-deferred, allowing the policyholder to postpone paying taxes on the growth until they withdraw the money.
What is the Importance of Life Insurance in Financial Planning?
● Protects against risk
● It helps to save money and build wealth for retirement and future
● It gives you peace of mind and reduces financial stress
● Take care of your dependents financially even if you pass away
How to Integrate Your Life Insurance with Financial Planning?
To integrate your financial planning into insurance, you should first determine your financial goals and objectives and the coverage you need, which helps you choose the life insurance policy that fulfills your unique needs within your budget.
Once you have selected the ideal life insurance plan, include it in your financial strategy. Next, consider how the policy will affect your budget and financial objectives. And then review and rebalance it periodically to fulfill changing needs according to time and your circumstances.
Conclusion
While working on financial planning, life insurance is something you can’t ignore for protecting your loved ones financially after you. In addition, you have to consider various factors while purchasing the policy and choose the one offering higher coverage at a lower premium. Remember you are adequately covered to meet all of your debt and outstanding obligations and to maintain the livelihood of your dependents.
Follow and connect with us on Twitter, Facebook, Instagram, and Youtube
