Is It Better To Have Life Insurance Or An ELSS?

Life insurance is a contract between an insurance policy holder and an insurer or assurer, where the insurer promises to pay a designated beneficiary a sum of money upon the death of an insured person. Depending on the contract, other events such as terminal illness or critical illness can also trigger payment.

Equity Linked Savings Scheme (ELSS) is a kind of mutual fund scheme that predominantly invests in equity and equity related instruments to generate high returns. What makes ELSS different from other equity mutual fund schemes is that investment upto ₹1.5 lakh in ELSS is eligible for deduction from taxable income in a financial year. The scheme comes with a statutory lock-in period of 3 years for each SIP. It is the only mutual fund scheme that qualifies for tax deduction under Section 80(C) of the IT Act.

Important Benefits Of Life Insurance Policy

Here are some common uses of life insurance benefits:

1. Paying Final Costs

Life insurance policy benefits can be used to help pay for final expenses after you pass away. This may include funeral or cremation costs, medical bills not covered by health insurance, estate settlement costs and other unpaid obligations.

2. Paying Off Debt Or Replacing Income

Life insurance benefits can help replace your income if you pass away. This means your beneficiaries could use the money to help cover essential expenses, such as paying a mortgage or college tuition for your children. It can also be used to pay off debt, such as credit card bills or an outstanding car loan.

3. Inheritance

Some people purchase life insurance with the intention of leaving the death benefit as an inheritance to their loved ones. If you'd like to have a specific person receive your benefits as an inheritance, the Insurance Information Institute (III) suggests naming your chosen heir as the beneficiary on your policy. This will ensure that your life insurance benefits fall into the hands of the person you intended to receive it.

4. Paying Federal Or State Estate Taxes

Depending on state laws, your heirs may need to pay an estate tax upon receiving an inheritance. The III says that life insurance benefits may be used to partially or completely offset this cost. It'd be a good idea to consult with your insurance provider or a financial professional to understand how estate taxes may affect your beneficiaries.

5. Charitable Contributions

Life insurance policies can also be created with your favorite charity as a named beneficiary, the III says. This can help ensure your philanthropic goals are met after you pass away, and that benefits are provided to your charity of choice.

6. Valuable Return On Your Investment

Several financial advisors in India suggest that everyone must invest in a life insurance policy not only to provide your family with the financial protection when you are not around but also from the perspective of gaining valuable returns from the investment. Many life insurance schemes in India offer a decent recent bonus in the form of a bonus that no other investment tools offer.

Also, life insurance is a safe investment tool as compared to other investment option. The money you invest in your policy is returned to you in full as the sum assured at the end of the term or after the demise of the insured.

7. Availability Of Loan

In the event of any emergency where you need money desperately, you can take advantage of your life insurance policy and take a loan against it. Today, almost all the major insurance companies in India provide loan facilities to the policyholders. You can borrow a certain percentage of the cash value of the policy, or the sum assured depending on the policy provisions. Make sure that you check with the loan policies with the insurer before you subscribe for the policy.

Benefits of Investing in ELSS

•  High Returns

Since Equity Linked Savings Scheme is essentially an equity scheme, it has the potential to deliver exponential returns in the long run. Although risky, investment in ELSS has the potential to deliver significantly higher returns when compared to traditional tax saving instruments. Moreover, ELSS has the lowest lock-in period amongst all other tax saving avenues.

• Tax Exemption

If your mutual fund savings  offers tax saving opportunities, along with high investment growth, what more can you ask for. ELSS allows you to save taxes, as investment upto ₹1.5 lakh in these schemes is eligible for tax exemption.

• Diversification

Investment portfolio of ELSS consists of balanced allocation to different asset classes such as equity and debt securities. Besides this, numerous funds diversify within the equity category as well, allocating assets to large cap, mid cap, small cap equity stocks. Via ELSS, one can easily diversify their overall investment portfolio and effectively mitigate market risk.

• Professional Management of Investment

As the investment portfolio is managed by professional experts who are well-informed about the market sentiment and functioning of capital markets, the investors’ money is in safe hands. Even if you don’t have much knowledge about the working of financial markets or lack time to track the market, you can still capitalize the returns from equity markets, via investment in ELSS.

• Disciplined Investment

Investment in ELSS requires a minimum lock-in of 3 years, which instills investment discipline amongst consumers. For a more efficient disciplined investment approach, you can also invest via Systematic Investment Plan (SIP) in ELSS, which requires periodic installments in the fund on predetermined dates. However, it should be noted that each SIP installment remains locked-in for 3 years.

Conclusion

Life insurance can be a sensitive topic, but it can help provide a more secure financial future for your family if the unexpected happens. Contacting an insurance agent can help you better understand the types of life insurance and determine what kind of policy fits you and your family's needs. ELSS is a conventional mode of investment that requires an investor to fill a form and submit it at the nearby branch of the fund house, or invest through a broker.

Also read-Understand The Different Factors That Determine Premium Of A Life Insurance 

Know Why You Should Choose Insurance Over ULIPs

Disclaimer: This article is issued in the general public interest and meant for general information purposes only. Readers are advised not to rely on the contents of the article as conclusive in nature and should research further or consult an expert in this regard.