Here’s a deeper look into the key factors that should guide your life insurance decisions.
Determining the right coverage
When it comes to deciding on the right amount of life insurance coverage, Rushabh Gandhi, MD and CEO of IndiaFirst Life Insurance, explains that it should be based on three core factors: life stage, life goals, and liabilities.
“The amount of life insurance coverage, multiplied by the expected long-term interest rate, should meet the family’s expense requirement to maintain their standard of living,” he says.
The coverage amount should be customised to fit individual financial goals and income levels. “It’s advisable to overestimate the required cover by 5% to guard against any deviations in assumptions,” Gandhi adds.
This extra cushion helps ensure that your family’s financial needs are met, even if projections change.
Life insurance as a tool for long-term financial goals
Life insurance is not just a safety net for the unexpected—it can also be a cornerstone of long-term financial planning.
“Life insurance protects against two key risks: dying too young and living too long,” Gandhi notes.
While most people think of life insurance as a means of protecting loved ones in case of premature death, it can also secure one’s financial future well into retirement.
According to Gandhi, life insurance is an attractive option for retirement planning due to its long-term nature and favorable tax treatment.
“It’s the only product that can guarantee a regular income for as long as one lives,” he says while talking to CNBC-TV18.com.
Moreover, life insurance has gained recognition as a reliable instrument for transferring financial assets and creating a legacy. “You can purchase a whole life policy and designate beneficiaries who will receive tax-free proceeds upon your passing, ensuring your legacy is passed on as intended,” Gandhi explains.
Complementing other investment products
While life insurance is often seen as a protection product, it can also complement other investments in a well-rounded financial portfolio.
Gandhi explains, “Life insurance offers both protection and long-term savings, making it an essential part of any balanced financial plan.”
Life insurance works hand-in-hand with other instruments like mutual funds, fixed deposits, and government bonds. “It is arguably the only product that provides a long-term or whole-life guarantee,” Gandhi says.
The impact of GST on life insurance premiums
The Goods and Services Tax (GST) applied to life insurance premiums has been a subject of debate, especially in a developing country like India, where social security is limited.
Gandhi suggests that reducing GST rates would make life insurance more affordable and accessible to a wider audience.
“GST is applicable on select life insurance premiums, but rationalising these rates would make life insurance more affordable and align India with global practices,” Gandhi notes.
