Life Insurance Greatly Improves Quality of Life
There are two main benefits of life insurance, security and savings. The security is for the family or other beneficiary in the event the policy holder dies. A sum of money will be given to the beneficiary so they need not suffer financial hardship after the death of a loved one. The savings comes from the investment policy where the objective is the growth of capital by single or regular premiums. Most Americans do not understand the benefits of life insurance.
Life insurance can solve many problems that arise when a person dies. If that person has financial dependents including family and people who need assistance for parenting or full-time caretaking, life insurance can make sure the dependents continue their lifestyles.
When a person dies, there could be many unpaid debts that the survivors are responsible for paying. Life insurance can make sure the survivors maintain their financial dignity and pay the debts.
People who have a large estate could leave a huge estate tax for their survivors when they die. Life insurance could take care of this.
Main Types of Life Insurance
There are several different types of life insurance plans and each one can be uniquely modified. The main ones are:
• A Permanent Life Policy is active until the policy matures. There are four types of permanent life insurance plans including whole life with premiums paid throughout the life of the policyholder with the sum insured payable at the time of death. This is the least expensive policy and is suitable for people who want to provide for their families or charitable institutions after death.
• Universal Life has flexible premiums and death benefits which can be decreased by the policy holder. They can also be increased by the policyholder, but this would need a new underwriting. This flexibility has the disadvantage of reduced guarantees. There are four main types of universal life insurance policies including interest sensitive, guaranteed death benefit, variable universal life and equity indexed universal life insurance.
• Limited Pay insurance premiums are paid over a specific period of time with no additional premiums. The time frame is usually 10 to 20 years. Term life insurance is the cheapest policy and will cover the policyholder for a specified term. If the policy holder dies during that term, the beneficiaries will get the insured amount. The premiums are low, but at the end of the term, if the policyholder is still alive, they get nothing.
• Endowments are insurance policies that accumulate a cash value that equals the death benefit at a certain age of the policyholder. This type of insurance is paid out at the specified time or age of the policyholder whether the insured dies or not.
• Accidental death insurance policies are specifically to cover the policyholder if they die because of an accident. These cover injuries and death but do not cover health problems or suicide. These policies are less expensive than other policies because they only cover accidents.
• A Multipurpose policy covers several insurance needs of the policy holder including provision in old age, income for family member’s education, wedding or other start in life. The beneficiaries get maximum protection if the policyholder has an early death with a regular monthly income for the unexpired time left as well as an additional monthly income for two years from the date of death. Part of the insured sum is paid at the time of death and the balance is paid at the end of the specified term. When the policy matures, the policyholder gets the full insurance sum in cash or as a monthly pension. It can also be given as an increased sum paid at the time of death. Premiums are paid until the specified term or until death.
There are a variety of insurance product options including Guaranteed Cash Values, Money Back and Guaranteed Maturity Values. These options are incentives to make the different plans more attractive and valuable to the policy holder.
• Guaranteed Cash Value is an account that builds as part of a permanent life insurance policy. It is a savings account with interest and is tax-deferred, so it can be used later in life for emergencies.
• Money Back insurance plans give the policy holder a lump sum of money on a regular basis that they can spend for planned expenses or unexpected situations.
• Guaranteed Maturity Values are the amount of the life insurance policy that is guaranteed after a specified amount of time.
Long Term Investment
Life insurance is a safe and profitable long-term investment. The insurance sector is highly regulated. The policy holder’s money is protected by the Insurance Regulatory and Development Authority (IRDA), and the investment is guaranteed long-term which is safer than risky short-term investments for short term gains.
Life insurance is an excellent tool for planning the retirement years. With the guaranteed income through annuities, the money that is saved while the policyholder is still earning is used to give a steady source of income during their retired years.
There are tax benefits for permanent life insurance. With careful planning, a policy holder can reduce their taxes while they are alive and, after they die, for their beneficiaries. With a permanent life insurance policy the policy holder can transfer to the beneficiaries their assets income tax-free and estate tax-free and also build a tax-deferred amount of cash inside the policy.
A policyholder can take a loan against the insurance policy for any unplanned financial emergency without adversely affecting the life insurance benefits of the policy.
A life insurance policy is also a tool to cover loans and mortgages that the policyholder takes, so that the burden doesn’t fall on the life insurance beneficiary in the event the policyholder dies.
Another security benefit is protection against the high cost of medical expenses. There are riders as well as health insurance plans that offer protection in the event the policyholder needs hospitalization.