Why Buy Life Insurance for Your Family?

The global health crisis is looming large. The necessity of life insurance is imperative in these unsettling times. It is a financial cushion for many during post-retirement.

Why buy life insurance at an early age?

This is a common thought amongst the younger working group. Investing early can help you build a sizable corpus. It is the right age to explore your finances. You have the benefits of compounding your investment by starting early. You have better access to lower premiums and higher coverage.
Why buy life insurance is a question that often ponders your mind.

It justifies the following reasons:

• Early unexpected death
• The longevity of your life with more liabilities

A financial Instrument

A life insurance plan covers long-term expenditures, such as:

• Financial support for the family at the time of your death
• Meet expenses for your children's education
• Savings for your post retirements
• Financial stability at times of illness or accident
• Support other contingencies and requirements

Who is in need?

Anyone who is a breadwinner requires life insurance. The amount depends on family size and lifestyle. Choose the right plan, depending on your affordability and your needs.

The plan enables you to fill your different needs. It is the right tool to help you settle down in life in your 30s.

There are options to choose if you start to invest early in life. The term plan and permanent plan are two main features. The term plan covers anywhere from five to 30 years. It is meant for a set term. It allows death benefits to beneficiaries in case of untimely death during the term. A term plan is known for its lower premium.

In a permanent plan, the premium is paid throughout your life. Thus, the plan covers you as long as you pay the premium. The plan does not expire. It has both death benefits and savings benefits.
Some term plans can be converted to a permanent plan. The permanent plan is favorable to tax treatment.

In the Right Direction

The majority of the consumers agree that they enjoy life more by financially protecting their loved ones. There has been an increase in awareness of insurance products.

A survey conducted recently showed an awareness of term products up to 50% among the millennial parents.

Life Stage Goals

Parents achieve a few milestones in their various stages of life. A sound financial plan gives protection to:

• Support for higher education for their children
• Other expenses, such as children's marriage

Children are the center of a family's financial planning. A recent survey reveals that childbirth is the most significant factor in buying an insurance plan.

A total protection plan can:

• Replace income that is lost through an untimely death. This applies to dependent adults like parents and adult children
• Able to cover funeral and burial costs
• Beneficiaries can inherit the policy benefits

Run Your Company from Distress

Besides protecting the family, life insurance caters to businesses. The untimely death of a key employer can cause businesses to close down. A company-owned protection plan helps to keep business afloat after the death of the owner. The insurer pays the death benefits to the company. The benefits can be utilized to pay debts or cover other losses.

Story of Peter's Company

Let us see how Peter's company survived. Peter owned a company in his 20s that was at its cutting edge. He had many employees under him, but he was an integral member of the team. He was the brain behind the breakthroughs of the company. Soon the company realized that it would suffer financial loss in his absence. Peter decided to invest in a plan to protect his company. As things began to take shape, Peter had cancer. He died within a few years of his policy into effect. The company's sales plummeted soon after his death. The death benefits of the company owner helped the business to run for the next 12 months. A new replacement for Peter could be done, and business was back on track.

This story should strike a chord in considering buying a policy.

A brief tax guide to debt mutual funds

Investing in debt mutual funds equates to varying risk levels, depending on the type of fund chosen and maturity among other aspects. Debt funds naturally have risks related to interest rates and credit risks, making them slightly riskier in comparison to bank fixed deposits and the like. Liquid funds are often chosen by people with investment horizons ranging between 3-4 months to a year or so while 2-3 years is usually chosen for short-term bond funds. Dynamic bond funds may be suitable for investment periods of 3-5 years.

Debt mutual funds can be smartly used to enhance your income and supplement what you earn from your salary/business. You may also invest a portion in debt funds for liquidity purposes. They may also be good avenues for those investing for retirement. Debt mutual funds are usually considered safer bets in comparison to equity investment funds.

Some key aspects worth remembering

You can expect comparatively lower returns from debt mutual funds in comparison to the riskier equity fund investments. Here are the returns that you will be getting:

• Income that you get in the form of interest.
• Appreciation of capital on the basis of market changes.

Debt funds usually have various types which are sub-divided on the basis of the instrument in which the investment is made. Some of the commonly preferred types include liquid, floating rate, ultra short term and corporate bond funds among others.

Taxation in case of debt mutual funds

Taxation upon debt mutual funds depends on several factors including the various types of funds in the market. There are two kinds of taxes imposed on these funds, namely Long-Term and Short-Term Capital Gains tax.

• Short-term- The debt fund that you hold for a period which is lower than 3 years will be classified as a short-term investment. This will be worked out on the basis of your specific income tax slab. Suppose someone earns approximately Rs. 12 lakh annually and based on the prevailing tax slab, the rate of taxation will be 30%. Now, consider that Rs. 1 lakh was invested by this person in debt funds for a tenor of 2 years. Since the period is lower than 3 years, the returns (interest) earned from this particular investment will be treated as short term capital gains. They will be taxed as per the person’s income tax slab, i.e. 30%.
• Long-Term- If you hold a debt fund for a period exceeding 3 years, it will be worked out as a long term investment. The taxation will be under long term capital gains and the rate will be 20% with indexation. There will be an additional 3% cess levied, taking the overall rate to 20.90%.

As can be seen, taxation varies from one person to another, depending on the type of debt fund invested in and other factors. Make sure that you read up on taxes, associated costs and other vital aspects of debt mutual funds before investing.