Life insurance is one of the most extensively available and used financial products being used by people to secure themselves financially. It is an insurance product that pays at the death of the insured. It is a contract between an insured and insurer, where the insurer promises to pay a designated/appointed or prescribed beneficiary a sum of money or the benefits of the policy in exchanges for a premium, upon the death of the insured. The insurer may pay this amount as a lump sum or in installments to the beneficiary of the insured.
Life insurance covers the economic loss that would occur at the death of the person insured. Life insurance is covers you throughout your life, generally till the age of 100. No doubt, life insurance policy has lots of benefits but it also has some disadvantages. Here are some of the advantage and disadvantages of life insurance policy:
Here are some of the advantages of the life insurance policy:
- The first advantage with regard to a whole life insurance is cash value accumulation on a tax-deferred basis. You may take a loan against the cash value, if you need at any point of time. You can even cancel the policy if you no longer desire insurance protection and get back the cash value. Upon death, the payment is free of income tax and the benefits can be transferred to a person outside the policyholder’s estate.
- Unlike the term insurance, this policy will cover the entirety of a person’s life. Thus he or she will get payment upon death, irrespective of whether death occurs at 25 or 90. Term policies expire after a definite time period. It can be renewed, but the premium cost will increase. However, the whole life policy premiums remain level so long the policy is active.
- The most important and significant advantages is the protection of any individual’s family. It is the best way to secure the family even if you are not alive. Insurance company compensates to the family for the economic loss of a valuable member of the family because it provides an infusion of cash for dealing with the adverse financial consequences of the insured’s death.
- The government greatly regulates the insurance sector making sure that your insurance company has enough assets to cover your liability or the pay your family in case of happening a specified event. This means that you have the peace of mind that in case of your death the money will be given out by the life insurance company and it does not go bankrupt.
- The premium amounts to be paid at definite intervals bring in the forcible habit of savings in people, which prove to be advantageous in the long run. Whole life insurance policy holders can budget the premiums over a lengthy time period, thereby reducing the possible risks of the coverage not being within your means.
Here are some of the disadvantages of the life insurance policy:
- While a whole life policy may be a lifetime investment, the cash-in value turns out to be quite low as compared to different alternatives. Although there are guaranteed returns, it is seen that stock markets historically have brought about higher returns.
- Not all persons require a policy of this sort. Many individuals have bought wrong policies with coverage that is inappropriate for them. There is no scope for improving the returns by investing in bonds or stocks as the whole process is managed by the insurer.
- As chances of death increases every passing year, the cost of this policy becomes higher. Many families will find this a costly affair and may turn to a cheaper alternative like a level term insurance.
- It has different meanings in different countries as well. For example, In India Life Insurance is mostly looked upon as an investment product. So, as an investment product in can be multifaceted particularly if the insurance is for estate planning, business situations or complex family situations.
- It is the condition that the applicants should have to good health, so only the person having good health can enjoy this policy, people not have good health cannot enjoy this policy to secure the future of their children and family.
- The holder of the whole life insurance policy foregoes some current expenditure to pay policy premiums. Furthermore, the life insurance is usually purchased for the benefit of others and usually only indirectly for the insured person.