What Is The Main Purpose Of Having Life Insurance

Why Life Insurance is Important

When you purchase a life insurance policy, you are safeguarding the financial stability of your loved ones. It is especially vital if you are the sole earning member of your family. Getting the right policy is beneficial to avoid financial hurdles but also cultivate a habit of saving.

Are you unsure what makes life insurance policies so lucrative? Read on to unlock why life insurance is important for you and your family.

Financial security is the number one reason to get an insurance policy immediately. This financial assurance is not just for your loved ones but can help you achieve long-term goals. Here is the objective of life insurance and some life insurance benefits to help you with your decision.

Protect your Family’s Future with Life Insurance

Maybe your son or daughter has dreams of studying abroad. Or you and your wife are planning to save up for a house. Regardless, life insurance means that you are always working towards these goals. In the event that you succumb to a fatal condition or an accident, you can rest assured that your family will be financially secure to fulfill their goals.

Cover your Debt with Life Insurance

Some debts may not go away even after your death. During circumstances like these, the financial burden could be challenging for your family. When you buy life insurance, you can rely on your beneficiaries receiving the amount of the policy to comfortably pay your debts and live a stress-free life.

Life Insurance as a Tax-Saving Investment

Perhaps the most attractive incentive for choosing life insurance plans is the tax break, both on the premiums and the payout amount after maturity or death. According to the Income Tax Act of 1961, life insurance is a tax-free investment, and there are no deductions to any amount paid towards or withdrawn from such policies.

The Main Purpose of Having Life Insurance

It is natural to wonder about the life insurance benefits for your future. Purchasing the correct type of policy per your requirements can assist you in staying secure against unforeseen circumstances.

Life Insurance Provides Financial Security for your Family

You can name one or more beneficiaries to receive the lump sum of the face value of your life insurance policy. What this ensures is that your family has a reserve of funds to fulfill both short-term and long-term needs. The main purpose of having life insurance is to let your immediate dependents, like your spouse or children, lead a comfortable life without worrying about financial hurdles.

Death Benefits

If you pay regular premiums to honour your commitment to the policy, the surplus amount directly goes to your beneficiaries after your death. Most insurers pay the death benefits within a period of 30 days of the claim. The sum awarded during death benefits is also exempted from taxes.

Maturity Benefits

The different types of life insurance in the market mean you can invest according to your long-term goals. Specific policies offer a death benefit, but endowment life insurance provides death plus maturity benefits. The latter is ideal if you want a tax-free method to grow your money.

Maturity insurance schemes usually have a fixed period after which you can avail of the lump sum as per the policy’s value. In case the policyholder passes away before the maturity period, the surplus amount is awarded to the beneficiaries.

Life Insurance Provides Cover Against Liabilities

During their lives, an individual might take credit for various reasons, like purchasing a home or a new car. But in case of untimely demise, these might linger and remain unpaid. When you get a life insurance policy, you stay prepared to deal with liabilities and prevent unexpected expenses from derailing your family's financial stability.

Life Insurance Assists in Achieving Long-Term Financial Goals

The significant tax respite in life insurance policies makes them an attractive option for building long-term wealth. If you are trying to save up for a particular goal, few investment options are as efficient as these. The purpose of life insurance is to help you fulfill long-term objectives without a chunk of your income consumed by taxes.

What is the Nature of a Life Insurance Contract?

If you look for the definition of life insurance, you will find many sources describing it as a contract. The contract defined here is a written agreement backed by the law. The rights of both parties of the contract are safeguarded by Indian law.

Here are some salient features that make up the nature of life insurance contract.

Life Insurance is a Contract Between Insured and Insurer

All life insurance policies define an insured and an insurer. The insured is the person who promises to pay a pre-decided premium semi-annually or annually, according to the conditions mentioned in the contract. The insurer is the other party who promises the award of a lump sum according to a predetermined value chosen by the insured.

The insurer is liable to pay the amount in case of the policyholder's demise or the expiration of the maturity period, provided the insured was regular with the payment of the premiums.

Insured Party

In legal terms, an insured party is an individual or group of individuals officiated to receive insurance payments in case of a loss. The beneficiaries are counted among the insured parties for a life insurance claim.

Insurer

The insurer is the individual or organisation that underwrites the insurance risk. If the policyholder passes away, they have to pay the compensation.

Life Insurance is a Binding Agreement

Given the nature of the contract, a life insurance policy is considered a binding agreement. It compels both the parties to fulfill their end of the promise without the need of a mediator to enforce the contract.

Life Insurance is a Risk-Sharing Mechanism

Life insurance plans operate on a risk-sharing mechanism, where your premiums are collected and stored in a pool with the premiums of other users. It is based on the premise that every user shares a risk. For instance, if one policyholder in the pool passes away, then the life insurance premiums of all the users are allotted to their families.

Choosing the Right Life Insurance Policy

Life insurance policies are offered in several types and differ based on the face value, duration, and premiums. To choose the best policy for your needs, you have to assess the following factors in detail.

Factors to Consider While Choosing a Life Insurance Policy

Policy Coverage

The reason for purchasing the policy plays a huge role in making the right decision. Do you only need a life cover? Do you require additional benefits like medical coverage? Depending on the problems you are worried about, you can look for companies that offer a policy covering various aspects.

Policy Tenure

Are you thinking of retiring in 15 years? Beginning to plan an early retirement in 10 years? Having clarity on your maturity period will help you select a policy that caters explicitly to your needs. The policy tenure should be based on your long-term financial goals and affordability.

Premium Payment

To assess the perfect premium payment for you, you need to gain an estimate of your disposable income. If you are looking to investing in life insurance, analyse and ascertain how much of your disposable income is used in other avenues. Calculate the leftover annual income to ensure that the premium payments do not make you suffer undue financial stress.

Claim Settlement Ratio

The credibility and reliability of an insurer can be gauged through its claim settlement ratio. Higher ratios indicate that the company proactively addresses and processes claims without significant hassle.

Settlement ratio = the number of claims settled/ total number of claims in the year.

Conclusion

Financial security is achieved when the future of you and your loved ones is in safe hands. But why do we need life insurance for financial security?

Life insurance policies are valuable instruments as they help your family stay secure in the erratic financial market. They help you feel assured that your family's future is in safe hands and that they will successfully fulfil all their monetary needs.

Having complete control over your financial situation also helps you make more informed

decisions. Life insurance policies act like a safety net to safeguard you and your family and assist them in getting back on their feet if faced with an unexpected crisis.

So, shed all second thoughts and buy a life insurance policy as soon as possible!