How Life Insurance Can Support Long-Term Financial Goals?

A term that helps us to save towards our life goals and manage life’s unexpected challenges along the way.

When it comes to saving money, people generally fall into two categories: irregular and regular savers. Irregular savers save money whenever possible, thinking little about their retirement plans and future. However, regular savers are diligent people who invest their money in multiple ways, carefully planning to meet their financial goals and choosing investments to suit them.

If you fall into the first category, you are not alone. The Economic Times reports that around 69% of Indian households struggle with financial insecurity. Likewise, a recent Reserve Bank of India survey highlights a sharp decline in India's net household savings, which dropped from 7.3% to 5.3% of GDP. Therefore, financial planning becomes very important in situations like these. Life Insurance is essential in long-term financial strategies, providing financial security for dependents in case of any unforeseen event. It also serves as a wealth-building tool and provides tax benefits, ensuring financial stability for the future. So, in this article, we shall learn why a Life Insurance policy is an important part of your long-term financial goals and how you can choose the one that fits your needs.

Understanding Life Insurance

Life Insurance is a contract between an individual and an insurance company. In exchange for regular premium payments, the insurer guarantees a death benefit to the designated beneficiaries. The premiums vary depending on the policy type, the coverage amount, and the policyholder's age and health. The basic concept is to provide financial protection to the policyholder’s family or dependents in case of an untimely death, ensuring their financial security. 

Types of Life Insurance Policies

There are several types of Life Insurance policies available in India, each designed to meet different financial needs and goals. 

Term Insurance

Term Insurance is one of India's most affordable and widely chosen types of Life Insurance. It provides coverage for a specific period, such as 10, 20, or 30 years, and pays a death benefit if the insured passes away during the term. Term Insurance provides life cover without any maturity benefit, making it a cost-effective option. Shriram Life Insurance provides affordable Term Insurance plans such as Online Term plan that provide high sum assured at competitive premiums.

Whole Life Insurance

Whole Life Insurance provides coverage for the entire lifetime. It includes a guaranteed death benefit and a cash value component that grows over time. Whole Life Insurance tends to have higher premiums than Term Insurance due to lifelong coverage and cash value accumulation. Shriram Life's Whole Life Insurance plans provide lifetime coverage and the added benefit of building cash value over time, making them a solid option for long-term financial security.

Unit Linked Insurance Plans (ULIPs)

Unit Linked Insurance Plans (ULIPs) combine Life Insurance with investment opportunities. A portion of the premium goes toward life coverage. At the same time, the remainder is invested in various funds, such as equity, debt, or hybrid funds, allowing the policyholder to potentially earn market-linked returns. ULIPs allow switching between funds based on your risk appetite and market conditions. Shriram Life provides a handy ULIP calculator, which helps you estimate return and maturity value.

Endowment Plans

Endowment Plans such as New Shri Life Plan are designed to provide both Life Insurance and a savings component. These plans provide a guaranteed payout either on maturity or in the event of death, whichever comes first. They provide moderate savings along with life coverage. While Endowment Plans typically have higher premiums than Term Insurance, they provide a more balanced combination of insurance and savings. Shriram Life's Endowment Plans allow policyholders to build savings while ensuring financial protection for their loved ones.

Child Insurance Plans

Child Insurance plans are designed to secure a child’s financial future, especially for education needs. These plans combine Life Insurance with savings, providing a maturity benefit that can be used for the child’s education or other future needs. Shriram Life provides Child Insurance plans that ensure financial protection for your child's future, helping you save for important milestones like education while providing life coverage.

Retirement Plans

Retirement or pension plans are designed to provide a regular income after retirement. These plans provide life cover during the accumulation phase and a steady income stream once the policyholder retires. Retirement plans ensure financial security in the later years of life. Shriram Life’s retirement plans are tailored to help you build a corpus during your working years, ensuring a reliable income post-retirement.

The Role of Life Insurance in Financial Planning

As a cornerstone of financial planning, a Life Insurance policy provides,

1. Income replacement for your family
2. Funds to cover outstanding debts and mortgages
3. Money for your children's education expenses
4. Resources for your spouse's retirement planning
5. A financial cushion to fall back whenever you’re financially down

That’s not where the benefit ends. A Life Insurance policy provides you with a measurable goal to work towards. It helps you focus on a clear objective—protecting your loved ones' financial future in your absence. A Life Insurance policy doesn’t need much money to start. For instance, the Shriram Life Early Cash Plan provides a cash bonus from your first policy anniversary until the end of your policy term. With the minimum sum assured being ₹1,50,000, it requires only a small part of your earnings. A Life Insurance plan is a foundational financial net since it jumpstarts your savings and improves your budgeting habits.

Psychologically, a good Life Insurance plan gives you considerable peace of mind since there is always an emergency fund you can fall back on. It also teaches you to make thoughtful investing decisions instead of moving haphazardly.

Achieving Financial Goals with Life Insurance

Life Insurance can secure your investment and support your various financial goals. Here’s how

1. Retirement Planning

Life Insurance helps your retirement planning by providing protection and providing a means to build wealth for the future. For instance, the Shriram Life Pension Plus plan can convert premium payments into a regular income stream during retirement, ensuring financial stability in your non-working years. Life Insurance policies are typically low-risk, ensuring guaranteed payouts and building a substantial retirement corpus. Additionally, Life Insurance addresses one of the biggest concerns of retirees: healthcare expenses, by helping cover medical costs for emergencies and preventive care. Moreover, Shriram Life Insurance plans provide tax benefits under Sections 80C and 10(10D) of the Income Tax Act, further maximizing your retirement savings.

2. Savings for major life events

Using a general Life Insurance plan to save for significant expenses like your child's education, wedding, and other major life events is a viable strategy. Life Insurance policies, particularly endowment policies such as the New Shri Life Plan, are designed for long-term savings and can help you accumulate a corpus over the years that can be used for these purposes. Additionally, the maturity benefits are tax-free under Section 10(10D), making it a tax-efficient way to save for your child's future. Many Life Insurance policies also provide a loan facility against the policy's surrender value, which can be helpful if you need immediate funds for education or wedding expenses without surrendering the policy. Depending on the type of policy, you can choose flexible payout options, such as a lump sum at maturity or periodic payments that align with milestones like your child's education or wedding.

3. Wealth creation and investment

Life Insurance is often seen primarily as a financial backup, especially in the case of Term Insurance plans. However, Life Insurance can also be a powerful tool for investment and savings. It can help with capital appreciation and preservation, supporting your future financial goals. Life Insurance plans provide various benefits, including guaranteed life protection, tax savings, assured income, and both market and non-market-linked returns, making them versatile tools for achieving different financial objectives. You can use Life Insurance for goal-based investments, such as funding your child’s education, planning for retirement, purchasing a home, building emergency funds, and more. The key advantage of using Life Insurance for investments or savings is the flexibility to choose options that align with your risk appetite and investment budget. With various choices available, you can find a plan that best suits your needs. 

Benefits of Life Insurance for Long-Term Financial Security

Life Insurance provides significant benefits for long-term financial security, making it an essential tool for individuals looking to safeguard their family's future. In addition to providing financial protection, Life Insurance also provides attractive tax benefits. Premiums paid towards Life Insurance policies are eligible for tax deductions under Section 80C of the Income Tax Act, reducing your taxable income. Furthermore, the maturity benefits or death benefit received by beneficiaries are generally tax-free under Section 10(10D), enhancing the overall value of your Life Insurance policy.

Life Insurance also provides the opportunity to accumulate cash value over time, particularly in permanent Life Insurance policies such as whole and universal life. A portion of your premium goes towards building this cash value, which grows over time. Once you have accumulated enough cash value, you can access it through policy loans, withdrawals, or even use it as collateral for loans. These loans are typically flexible, allowing you to repay at your own pace. However, it’s important to note that if the loan exceeds the cash value or remains unpaid, it could affect your policy's status or reduce the death benefit.

Furthermore, the cash value component can be used as a financial resource in times of need. You can withdraw funds from your policy for personal expenses or take a loan against the cash value to cover significant life events such as education or medical costs. While taking loans or withdrawals may reduce the death benefit, the ability to tap into the accumulated cash value provides added financial flexibility and helps support long-term goals like retirement or other large expenses.

Real-Life Examples and Case Studies

1. Aditya Sharma’s Family and the Importance of Life Insurance (India)

Aditya Sharma, a professional from Kanpur, shares the pivotal role Life Insurance played in his family's financial security. His father, a disciplined saver, had always emphasized the importance of planning for unexpected events. Early in life, he chose a Life Insurance policy that would provide the necessary funds for the family in case something happened to him. Tragically, when Aditya’s father passed away, the Life Insurance policy was settled and provided critical financial support. Aditya and his brother were still in school, and this timely settlement ensured their education and living expenses were taken care of during the uncertain years that followed. Aditya credits this decision as the smartest financial move his father made, as it shielded the family from the harsh consequences of his untimely death.

Choosing the Right Life Insurance Plan

When selecting a Life Insurance policy, making an informed decision that aligns with your financial goals is essential.

Here’s a walkthrough to help you choose the best policy:

1. What are your financial goals: Are you securing your family’s financial future, saving for education, or ensuring retirement income? The right policy for you depends on your goals. 

2. To ensure your family’s needs are met, choose coverage at least 10-12 times your annual income, accounting for debts, liabilities, and future expenses. For instance, the Assured Income Plan provides guaranteed income with a low premium payment.

3. While affordability is important, ensure you’re getting adequate coverage and policy benefits. Shriram Life Insurance has multiple plans that help you choose the best one for you.

4. The term should match the period your family will financially depend on you. For Term Insurance, subtract your current age from the age you expect to stop earning or achieve a major life goal.

5. Select the Right Policy:

• Term Insurance: High coverage at affordable rates for a set period.
• Endowment Plans: Combines Life Insurance with a savings component, providing a lump sum at maturity.
• ULIPs: Flexible with investment options for long-term wealth accumulation.
• Whole Life Insurance: Provides lifelong coverage with a cash value component.

6. Your age, health, and lifestyle (e.g., smoking, drinking) influence premium costs. Younger, healthier individuals typically pay lower premiums.

7. Know more about riders and other add-on benefits. For instance, riders like critical illness, accidental death, or waiver of premium can provide additional coverage, though they may increase your premium.

8. Carefully read the policy details, including exclusions and limitations, to avoid surprises and ensure full transparency.

9. If your policy includes a cash value component, know how it grows. This can be a valuable wealth-building tool over time.

10. If you’re unfamiliar with Life Insurance, consider consulting a Shriram Life Insurance advisor to help you choose the most suitable policy based on your needs and financial goals.

Conclusion

To summarize, Life Insurance is a critical component of long-term financial planning, providing benefits such as income replacement, debt coverage, and savings for major life events. Whether you're looking to protect your family's future, save for retirement, or accumulate wealth, there’s a Life Insurance policy to suit your needs. By carefully evaluating your financial goals, coverage amount, policy term, and type of policy, you can ensure that your Life Insurance choice aligns with your personal and family goals.

We encourage you to consult with a financial advisor or Shriram Life Insurance expert today to make an informed decision tailored to your specific situation. Life Insurance isn’t just about protection—it’s a strategic tool to help secure your financial future. With products like the Shriram Life Assured Income Plan (AIP), you can enjoy guaranteed regular income, flexible policy terms, and the potential for bonus payouts, ensuring a steady income stream for the future. Additionally, the Shriram Early Cash Plan (ECP) combines life coverage with savings, providing dual financial protection benefits, a lump sum payout at maturity, and tax-saving advantages. Both plans are designed to help you achieve long-term financial goals while providing flexible premium payment options, making them ideal for securing your family’s future.

Start planning today for a more secure tomorrow!