Tuesday, July 7th, 2020

Advantages of a Life Insurance


Life insurance

Life insurance is a contract between the insurer and insured. The person who insures his life is called the insured. The company which insures his life is called insurer. The insured is required to pay some amount of money in regular intervals. These payments are referred as premiums. According to the principle of life insurance a sum of assured money is paid to the insured incase the policy holder successfully makes all the payments and the policy comes to an end. On the contrary if the insured dies of an unexpected event the sum assured is paid to his dependents irrespective of full payment of the policy amount. The insurance company pays the money on death or after the policy period whichever occurs first.

Advantages of a Life Insurance Policy

A) Financial Security
Life Insurance is a powerful means to provide financial security. When the Head of a family dies due to some unexpected events or for reasons like prolonged illness the life insurance policy is a boon to the family. They can make use of the funds paid by the insurance company to meet their needs without which they would have landed in a financial lurch.

Life insurance is another means for saving. Individuals and families who take up a life insurance policy have to pay premiums periodically. Therefore they will naturally be forced to allot sufficient funds for this purpose.This practice encourages thrift and also helps them to plan for some productive schemes in a similar manner.

Life Insurance Policies also help people to take care of their families in case of retirements. This can come as a great relief especially if the person who retires does not have alternative sources of income to take care of his family.

Life insurance polices are indicators of financial credibility. Therefore this factor can help individuals and institutions to borrow money and raise adequate finance as and when they are needed. Similarly it reduces the employer’s burden of paying compensation to the deceased family as many companies are following group insurance policies.
B) Diverts States Resources for Other Purpose

One important responsibility of the governments in any country is to take care of the old and dependent population. Many developed countries like U.S. and Canada collect a large amount of funds from the employed citizens to meet these needs. The state also allocates few funds for this purpose. With the increasing awareness of insurance the governments can be assured of spending less for the old. Though this will not absolve their responsibility it will help to reduce the quantum of their investment. As a result they can concentrate on burning issues and problems in the society.
C) Facilitates Economic Movements

Life insurance companies collect premiums from multiple investors. They are thus able to mobilize large funds. This money is used to finance trade and development activities. Ultimately production of goods and services will flourish and the economy of the nation will be improved.

D) Helps to Avail Tax Exemptions

The policy holders are entitled to claim income tax exemptions for paying the premiums. The amount and the extent to which they are allowed depends on other factors like the persons income and if the insurer is a private player or run by the state. This provision will indirectly tempt people to invest in insurance and attain a mutual benefit of tax exemption and providing security as well.

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