Table of Contents
Life Insurance Policy
Life insurance is an important aspect of financial planning. This is so that the individual and their loved ones remain financially secure when faced with the worst of circumstances. It is worth mentioning that a life insurance policy involves a contract between the insured and the insurance beneficiaries whereby the insurance company pays out a lump sum determined by the insurer only after the life insurance policyholder dies and regular premiums are remitted. Surprisingly though, and understandably, many people regard life insurance as just an umbrella over the heads of their dependents in cases of parents’ deaths; its complications and potential offered by its many varieties render it a worthy tool to consider in making a plan for one’s finances in the future.
For choosing any particular type of life insurance policy, an understanding of differentiating features and benefits of various policies and their subtleties is required. In this judges report, we will shine light on what life insurance entails, examine the distinctive characteristics of life insurance, state the importance of life insurance, tackle the major topics of the report and state the advantages and disadvantages of life insurance. By the end of your reading this article, starters will appreciate how their financial plan can accommodate life insurance and the assurance it gives to them and their families.
Features of Life Insurance Policy
The life insurance comes along with a variety of features which are aimed at particular needs and situations. It is very necessary to appreciate these features when making the appropriate choice of policy. The following are some of the important features of the life insurance policies:
1. Premiums
The premium is the consideration that the insured pays in order to keep the policy running. Payment of the premiums can be done on a monthly, quarterly or annually basis. They may differ with the nature with the kind of insurance, age and health of the insured and the amount of coverage.
2. Coverage Amount
This is the amount of money that the insurer undertakes to pay the beneficiary when the insured dies. Coverage amount should be determined in relation to the specific financial needs of an individual such as mortgage repayments, children’s education, and cost of living.
3. Beneficiaries
The persons or parties outside the insured that are being designated as receiving the policy benefits amounts after the death of the insured are referred to as the beneficiaries. There are circumstances under which such a policyholder can have more than one beneficiaries with percentage portions allocated to each of the benefits.
4. Term Length
Life insurance policies can either be term or permanent. With the term life insurance, coverage is extend for a certain agreed period (for example- -10, 20 or 30 years) but on the other side, there are permanent policies like whole life and universal offering lifetime coverage to the assured.
5. Accumulation of Cash Value
Some specific types of life insurance policies like the whole or universal life insurance policies grow cash value over a period. This amount of accumulated value can be loaned out or taken out, enabling the policyholder to have a degree of freedom.
6. Riders and Add-Ons
Life insurance policies can allow for inclusion of extra features known as riders. Some common riders are as follows:
Accidental Death Benefit Rider: If the insured meets his/her doom in an accident, this rider will compensate for added cover.
Critical Illness Rider: Allows one to offload a set amount in case an insured party suffers from critical illness.
Waiver of Premium Rider: Premiums are paid not by the insured but because the insured has become ill enough.
7. Surrender Value
There is a surrender value which is the cash equivalent that is available to the insured person when he/she chooses to terminate a permanent life insurance policy less any cancellation expenses.
Specialty of Life Insurance Policy
Life insurance policy, being an insurance product, has some unique specialties that distinguishes it from other money market products. These specialties make them very crucial in the financial planning:
1. Financial Security for Dependents
One of the essential needs for the people is the life insurance, and it has complete worth while addressing the needs of dependents. It replaces the income and the future prospects of the deceased policy holder, in case of premature death, the family receives a death benefit for their economic survival.
2. Debt Serviced
The life insurance helps retire debt obligations which include mortgages, car loans, and credit card debts. Hence less financial accountability will shift to the family members during a hard season in life.
3. Tax Deductions
There is a provision in most jurisdictions that the life insurance proceeds are non-taxable in the hands of beneficiaries. There is also a provision in permanent policies where the cash value appreciation is tax sheltered, which is a tax benefit.
4. Estate Reconstruction
In estate planning, life insurance is an asset that is not dispensable. It also ensures that the estate tax obligations are settled, allowing heirs to enjoy the full amount of the estate without any tax debts.
5. Supplementary Retirement Funds
Borrow on cash value from permanent life insurance policies during retirement. Additional source of finances would be a retirement package.
Function of Life Insurance Policy
Life insurance policies are useful for many things and that is why they are considered very effective financial tools. Some of these functions include:
1. Salary Replacement
Life insurance can provide the insured’s family with a financial cushion by compensating the family for the loss of income where the insured is deceased; this helps the family continue with their normal life and daily expenditures.
2. Educational Funding
To ensure that there would always be funding for their children s education, many parents take life insurance policies. They are particularly useful when it comes to paying for college education, accommodation, and even college expenses.
3. Protection of the Business
Life insurance policies could also be useful to the business person for safeguarding their business concerns. For example, Key person insurance helps when a key employee of the organization dies in a way that the organization receives funds.
4. Philanthropic Giving
As a part of the estate planning process, many policyholders opt for charitable alternatives on the policy and this can give an enormous amount of support with useful tax benefits as well.
5. End of Life Braids
Insurance coverage could also help ease the financial burden that families face when organizing funerals or other end of life events.
Main Theme of Life Insurance Policy
Nonetheless the policies help in planning, majorly the policies center on protection. They act as insurance to families and individuals at times of instability.
1. Protection from the risks of future events
Life insurance policies help reduce the negative effects of sudden phenomena in life which can be a disaster. Putting aside such apprehensions, these types of policies provide a solution that such loved ones will not suffer financially in relation.
Long-term Section of Planning
Besides providing short-term gains, life insurance assists in the overall financial planning. People who work with life insurance tend to center on setting goals, obligations, and their family’s tomorrow.
Section of Relaxation
Being insured provides a sense of security. The policyholders have the assurance that their dependents will be provided for irrespective of any occurrences.
Pros and Cons of Life Insurance Policy
Pros Cons
Provides financial protection to dependents Permanent policies can be costly
Coverage is flexible Difficult to comprehend
Tax for just beneficiaries Not every policy offers cash value
Provides peace of mind to policy holders Early cash out will lead to penalties
It is usable for more than one financial planning needs Possible loss of coverage for non-paying premiums
How the Pros Worked
Financial Security: Life insurance assurance is that economic mournful compensation shall be given if the life is ceased of the insured individual.
Flexible Options: Variety of variations of life insurance policies and riders are available which ensures that the policyholders get a cover which is appropriate to their needs.
Tax Benefits: Members of the family who receive proceeds from life insurance benefits are not taxed.
Cons Explained
Cost Considerations: Life insurance premiums may be particularly high especially when purchasing whole life insurance causing them to consider the premiums paid as a financial investment.
Complexity: The various provisions in the life insurance policies can be complicated factors to the policyholders that make it hard to fully appreciate the coverage.
Lapse Risk: There is also a chance that if the premium payment, referred to as the “on time,” is ignored, the particular policy may lapse.
Conclusion: Life Insurance Policy
In conclusion, take out life insurance cover as it is the best way to protect oneself in case of any unfortunate circumstance occurring. It addresses all tragic surprises assuring that the breadwinners with their families have the necessary amount of money in tragedy strikes. With the variety of the available life insurance policies cover, features and applications life insurance can as well be said to range to suit more personalized circumstances.
With life insurance, being in a position to make choices that help achieve them financially will depend on an understanding of how life insurance works. Be it with the aim of securing income, settling debts, or preparing for one’s later years, let it be known that life insurance is from this day deemed as one of the greatest sources of financial security and stress free.
Basics of Life Insurance Policy
How much does life insurance cost on average?
The average cost of life insurance ranges from individual to individual depending on factors like age, health status, amount of coverage, and type of policy. On the average, term life policies are less expensive compared to both whole life and universal life policies.
How do I know how much coverage I need?
In order to determine how much coverage is needed, you will have to look at your liabilities, that is, the debts owed, everyday costs incurred, and future aspirations such as fulfilling the education needs of the children.
