Importance of Life Insurance

November 17, 2008 by  
Filed under Insurance, Stock Market


Life Insurance is a type of insurance in which the policy holder receives a specified sum of amount from the Insurance Company, in the event of his death. The assured amount is payable to the insured person’s family members or whoever he nominated in the policy application. Some Insurance policies (Term Life Insurance) also offer money-back guarantee through which the policy holder is paid a certain sum of money (plus bonus), if he is surviving after the policy expiry.

The policy holder has to pay a certain amount of money as a premium to the Insurance Company. The premium amount is calculated based upon the policy period, age of the policy holder, type of policy and the sum assured. The premium amounts can be paid monthly, quarterly, half-yearly or yearly depending on the policy holder’s choice.

If you are confused in choosing a policy plan you could consult an Insurance advisor who would be in a better position to assist you. Some type of Life Insurance policies may have “Double Accident Benefit” which means the dependants of the policy holder would be paid double the amount of the assured amount in case of death by accident. Before buying any life insurance plan you must read the terms and conditions of the policy.

Advantages of Life Insurance

There are lots of advantages in buying a Life Insurance policy rather than traditional investments. In case of other investments like savings in bank account or term deposits the dependants are paid out the amount that was actually saved by the investor (incase of his death). Whereas through a life insurance policy, the policy holder’s dependant would be paid the assured amount which is more than the actual amount paid (premiums) in most of the cases. Individuals who pay premiums for life insurance plan can claim for tax-deductions. A Life Insurance policy paves way for a potential monetary support to the family members/ dependants of the bread-earner of the family. You can avail loans against your Life Insurance policy at the time of need.

Disadvantages of Life Insurance

If you missed the opportunity to buy a Life Insurance policy at a younger age, your premium amount is too expensive as the risk of death is more as you get older. Life Insurance may not be suitable for everyone. For instance a person who lives alone or has no dependants does not require a life Insurance. Although the premium amount is lower for the age group of 25 to 30 the risk of death is lower and instead of paying the premium amount they could make investments in Term Deposits, Stocks, Mutual Funds etc. where they could earn more profit. Life Insurance is more beneficial only when the policy holder dies within the policy period in case of Term Life Insurance. If the policy holder survives after the policy expiry he would be paid a sum of amount that would be less than other Investment returns like Mutual Funds, Stocks, Property Investment etc. In case if you are in a severe financial crisis and want to discontinue from the plan the surrender value would be much lower than what you actually paid (premium).

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