Life insurance is often seen as a financial tool used primarily by individuals with insufficient savings or dependents needing financial support. However, high-net-worth individuals (HNIs) can also benefit greatly from life insurance policies. With liquid assets ranging from Rs. 5 lakhs to Rs. 5 crores, HNIs must protect their wealth and secure their family’s future in uncertain and changing economic landscapes.
Safeguarding the Uncertain Future
The future is inherently uncertain, and economic changes can significantly impact your wealth and worth as an HNI. Investing in a life insurance policy ensures that adverse economic circumstances do not compromise your financial goals. In the unfortunate event of your demise during the policy’s tenure, the death benefit payout from the plan will provide your family with financial protection to cover any pending liabilities and secure their future.
Insurance plans like term insurance are not limited to those without savings; even with a high annual income or significant net worth, life insurance is a valuable tool for protecting your inheritance and supporting your family’s financial well-being.
Tax Benefit Capitalisation
The HNIs can also leverage term insurance plans for tax planning purposes. Premiums paid for term insurance plans are eligible for tax deductions under Section 80C of the Income Tax Act, up to Rs. 1.5 lakhs. Additionally, the death benefits paid out under these plans are tax-free under Section 10(10D) of the Act.
Furthermore, premiums paid for riders on specific illnesses specified by the insurance provider that are part of the term insurance plan are deductible up to Rs. 25,000 (Rs. 50,000 for senior citizens) under Section 80D of the Income Tax Act, 1961.
Let us understand this with an example:
You are an HNI with an annual taxable income of Rs. 20 lakhs. By investing in a term insurance plan with a premium of Rs. 1 lakh, you can avail of tax deductions under Section 80C. This deduction will help reduce your taxable income to Rs. 19 lakhs, resulting in significant tax savings.
Covering Loan Payments
As an HNI, you may have various outstanding loans, whether for starting a business or purchasing a home. At the same time, you can easily manage loan payments while alive and earning; your untimely demise could burden your dependents with these financial responsibilities. Term insurance plans offer a lump-sum payout that can cover these debt expenses and provide your family with much-needed financial relief.
Let us understand this with an example:
You have taken out a loan of Rs. 50 lakhs for a business venture. Unfortunately, you pass away before being able to repay the loan completely. Without a term insurance plan, repaying the loan would fall on your family members. However, with the lump-sum payout from the term insurance plan, they can settle the loan and avoid financial strain.
Additional Protection via Riders
Term insurance plans also offer riders that provide additional protection beyond the basic life cover. These riders include options such as accidental death benefit rider, critical illness rider, waiver of premium rider, and income rider. These add-ons offer extra benefits in case of specific emergencies or incidents.
Let us understand this with an example:
Let us say you are an HNI who travels frequently for work purposes. By opting for an accidental death benefit rider, you can provide your family with an additional payout in the unfortunate event of your accidental death. This extra amount can help them manage their finances during a challenging time.
Things HNIs Need to Consider Before Buying a Term Insurance Plan
When purchasing a term insurance plan as an HNI, there are a few key factors to consider:
- Consider your high-profile lifestyle expenses, debts and liabilities, and future responsibilities before choosing a life cover option.
- Select a beneficiary order to ensure the term plan payout remains within your family, even if the primary beneficiary passes away before you.
- Compare insurers and pick one that best meets your financial and coverage needs. Look for special riders like smart exit benefits, maturity benefits, life stage benefits, etc.
- As you plan for the future and consider various financial options, including life insurance policies, take advantage of online resources such as life insurance calculator to evaluate different scenarios and make informed decisions.
Conclusion
Life insurance not only provides financial protection but also offers tax benefits for HNIs. By safeguarding against an uncertain future, covering loan payments, and providing additional protection through riders, term insurance plans can serve as valuable tools in securing your wealth and ensuring your family’s financial well-being.
Remember that life insurance policies are not solely for those without savings. They can be powerful instruments for HNIs to protect their inheritance and support their families. With proper planning and consideration of your unique requirements as an HNI, you can leverage life insurance as a strategic tool for tax planning while ensuring the long-term financial security of your loved ones.
