The general perception of life insurance is that it is a non-compulsory financial product that one can either defer or altogether avoid. But if you are a regular salary earner, getting a life insurance policy should be considered a must rather than a mere thought. It secures your family's financial future and allows them to keep up their standard of living even after you are gone.

This article will provide the details on why life insurance is a must for each earning person and how it lines up with your retirement through pension schemes over the long run in your financial planning.

Why Life Insurance Matters for Earning Individuals

Life insurance is a financial safety net for your beneficiaries in the event of your unexpected death. Consider the following five convincing points for having it:

  • Protects Your Family's Financial Future

Your earnings are the primary source for your family's subsistence, education, and comfort. If you happened to die, life insurance would stand in for your salary. Bills of your family will be paid, their expenses will be covered, and they will be able to live their life just as before without suffering any financial hardships.

  • Covers Outstanding Debts and Liabilities

The majority of the working population has loans such as mortgages, car loans, or personal debts. Life insurance prevents these debts from falling upon your family as a burden. The reimbursement can be used to pay off the remaining loans. 

  • Secures Your Children's Education and Future Goals

Life insurance assures parents that their little ones will get the best education possible through the most expensive yet excellent schools. The money can be used for other significant life events, such as education or a wedding, thus creating opportunities for them even in your absence.

  • Complements Your Retirement Planning

Life insurance is an asset when it comes to securing your retirement plans with pension schemes. The money you get from pension schemes is your source of income during the retirement period. Life insurance provides safety for your family in case something happens before you retire. They together provide a complete safety net covering all the stages of life.

  • Offers Tax Benefits While Building Security

Life insurance provides tax deductions under relevant sections of the Income Tax Act. You save money on taxes while building financial protection. The premiums you pay reduce your taxable income, and the payout your family receives is also tax-free in most cases.

Key Benefits of Combining Life Insurance with Pension Schemes

  • Dual Protection: 

Retirement plans ensure your income after retirement, and life insurance coverage protects your family during a financial crisis during your working life.

  • Financial Independence: 

Your partner maintains the same standard of living and is not financially reliant on anyone else.

  • Retirement Corpus Safety: 

Life insurance stops your family from early withdrawal of pension benefits in case you die before retirement.

  • Long-term Stability: 

Both instruments ensure financial stability across different life stages.

Choosing the Right Life Insurance Coverage

Getting life insurance is essential, but having adequate coverage matters more. Insufficient coverage defeats the purpose of protection.

  • Calculate Your Coverage Based on Real Needs

Consider your annual income, existing debts, future goals, and your family's monthly expenses. A general rule is to have coverage equal to 10-15 times your annual income. This ensures your family has enough funds for several years.

  • Start Early for Maximum Benefits

Younger individuals pay lower premiums because they are healthier and pose less risk. Starting early locks in these low rates for the entire policy term. You also get more years of protection, ensuring your family stays secure throughout your earning phase.

  • Choose Between Term and Investment Plans

Term insurance provides total protection at inexpensive premiums. Investment-linked plans combine insurance and savings, but they are more expensive. Term insurance is a better choice for most working people because of its high coverage at a lower cost, enabling them to invest the difference elsewhere.

Common Mistakes to Avoid

Many people delay buying life insurance, thinking they are too young or healthy. Others buy insufficient coverage to save on premiums. Some rely only on employer-provided insurance, which ends when you change jobs or retire. Avoid these mistakes by taking personal responsibility for your family's financial security now.

How Life Insurance Fits Your Overall Financial Plan

Life insurance shouldn't exist in isolation. It works best as part of a comprehensive financial strategy that includes emergency funds, pension schemes, health insurance, and investments. While pension schemes ensure you have income during retirement, life insurance guarantees your family won't face financial difficulties if you're not there to contribute.

This combination creates a safety net that covers both scenarios: your presence and your absence. Your family remains protected regardless of what life brings.

Conclusion

Life insurance is a must for every person who earns money, as it mainly shields your family's financial future, pays off loans, educates children, adds to pension schemes, and gives the advantage of tax exemption. If you start contributing early with sufficient coverage, your family will not only live on but also achieve their targets even without your income. Do not put off this vital financial decision.