Life insurance is chiefly a risk management tool, meant to offer financial protection to dependents in the unfortunate event of death. If one is adequately insured, his/her life insurance should enable dependents (spouse, children, parents) to maintain their current lifestyle and pursue their life goals-till such time as they are in a position to set up an alternative income stream by themselves. That’s the basic purpose of life insurance.

Based on their objective, basic plans offered to insurers can be classified under three broad categories :pure insurance products (term plans), pure investment products (pension plans) and investments-cum-insurance products (endowment, money-back, whole life and unit linked insurance plans).

Life insurance offers some degree of financial protection to dependents in the event of your death, but it doesn`t cover for some extreme contingencies. Riders are options that allow to enhance life cover, qualitatively and quantitatively. In fast food parlance, they are the toppings that add to likings. And as with toppings, riders are optional and available in a variety of ’flavours’, to be picked and chosen, mixed and matched, based on one’s preferences. And each comes for a small additional cost.

For the salaried, the rebate under section 88 of the Income Tax Act is an effective way to lower tax liability. Under this section, a percentage of investments made in specified instruments can be claimed as a rebate, within limits, and be subtracted from the tax payable. Premiums paid towards all life insurance plans (except one) qualify for tax rebate under Section 88, along with investments in other instruments like PPF and NSC. If someone claim a rebate on an investment in an insurance plan but withdraw from it within two years, the rebate claimed will be deemed as tax payable.