Most entrepreneurs, along with professionals, devote their time to business expansion without recognising the fundamental role that life insurance plays in their financial tactics.
Any professional who works as either a salaried employee or a business owner can secure their finances with a suitable life insurance policy through which they receive economic protection, arrange business transitions, and take advantage of tax benefits. Here is how:
- Financial Security for Your Family and Dependents
Additionally, the main advantage of life insurance is that it offers financial stability to your family should a disaster occur. The insurance policy payment provides assistance to meet expenses such as:
- Daily living expenses
- Outstanding loans and debts
- Children’s education
- Spouse’s retirement planning
A protection layer under life insurance covers more than personal safety and extends to securing business continuity. Having business income-based financial needs makes life insurance essential because it provides your family with the necessary funds to maintain their lifestyle even after you pass away.
- Business Succession Planning
The purchase of business ownership benefits from life insurance by sustaining operations when unexpected events occur. Here is how:
Buy-Sell Agreements
When business partners fund their buy-sell agreement with life insurance coverage, it provides them with a structured mechanism to purchase the deceased partner’s share of the business. However, a legally documented agreement is essential for this process to work effectively. Without a proper contract, surviving business partners may usually encounter difficulties when attempting buyouts because family members may struggle to receive fair compensation.
Key Person Insurance
The economic stability of organisations, which depend on one major individual (founder or senior executive), will suffer financial damage when that person is absent. A life insurance policy protecting vital staff members enables the company to continue operations. The payout from key person insurance is provided to the business, not to the deceased’s family, unless structured differently.
Debt Repayment
Many businesses operate on loans. A life insurance policy safeguards business operations and family financial stability by covering outstanding debts, thus reducing financial liability for the owner’s family while protecting their business’s value.
- Tax Benefits and Wealth Creation
Life insurance gives tax benefits, which transform it into an efficient financial planning instrument.
Tax Deductions on Premiums
The policy premiums qualify for tax deductions under Section 80C of the Income Tax Act, up to ₹1.5 lakh per year. However, for tax-free maturity benefits, the annual premium must not exceed 10% of the sum assured (or 20% for policies issued before April 1, 2012). Business owners can also claim deductions on policies covering employees or key personnel, but personal life insurance premiums are not deductible for business tax purposes.
Tax-Free Payouts
The insurance payout recipients may receive a tax-free distribution under Section 10(10D), provided the premium does not exceed 10% of the sum assured. However, policies purchased after April 1, 2023, with annual premiums exceeding ₹5 lakh, will be subject to taxation under the new regulations.
Investment-Linked Policies
Some types of life insurance, such as Unit-Linked Insurance Plans (ULIPs), incorporate investment components that allow policyholders to grow their wealth alongside financial protection. However, returns on ULIPs are market-linked and not guaranteed. Traditional endowment plans offer guaranteed but lower returns and are typically used for long-term savings.
Life insurance goes beyond protection as an important financial instrument that supports personal development and business expansion. Many people use life insurance to achieve financial security for their families while securing their businesses and maximising tax benefits through proper planning. When you integrate life insurance into your financial blueprint, both future security and enduring wealth creation become more attainable.