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The Importance of Life Insurance
Life insurance is commonly known and associated with death and that many people shy away from the idea if securing their family’s future by purchasing even the very basic insurance policy. Many financial experts, however, consider life insurance as one of the best financial instrument because of its many uses such as the following:
Life insurance is a form of Investment
It is a safe and profitable form of investment because of the company’s ability to diversify these investments. The profits gained from this investments are then shared with the policy holders either in the form of dividends or lower premiums.
Form of Savings
Life insurance is a successful form of savings because it forces a person to save regularly and persistently. It helps an individual overcome the weakness in saving since the amount of money to be saved and the time when it has to be saved is definite.
The living benefits and maturity benefits of a life insurance policy can answer the need for a retirement income during old age, where the breadwinner becomes less economically productive. With such benefits, the breadwinner can retire gracefully and peacefully, knowing that money is available for purposes of leisure, travels, hospitalization and long-term care expenses.
Educational fund. This is a fund for the educational expenses of the children for the elementary, high school, college or post graduate courses.
Life insurance benefits can pay estate taxes so that your heirs will not have to liquidate or sell other assets and take a smaller inheritance.
Estate Creation or added property
A life insurance policy can help you create an estate instantly without having to worry about time. In addition, by purchasing a policy, an individual has just added another personal property to his current estate. With life insurance, an individual can have the most liquid asset because the policy can easily be converted into cash when an unexpected event occurs.
You usually can borrow from the insurance company, using the cash value in your life insurance as collateral.
If people depend on your income, life insurance can replace that income for them if you die. The most commonly recognized case of this is parents with young children. However, it can also apply to couples in which the survivor would be financially stricken by the income lost through the death of a partner, and to dependent adults, such as parents, siblings or adult children who continue to rely on you financially. Insurance to replace your income can be especially useful if the government- or employer-sponsored benefits of your surviving spouse or domestic partner will be reduced after your death.
Payment for Final Expenses/Clean-up Fund
This is the fund needed to pay whatever liabilities created due to death such as:
- Debts incurred by the breadwinner during his lifetime.
- Funeral and Burial costs.
- Medical expenses and hospital bills.
- Mortgage and estate taxes
Life Income for the Widow or Widower
This is the retirement fund needed by the widow or widower when he/she is left alone to support his/her own needs.
Other Uses of Life Insurance
- Housing fund
- Wedding fund
- Emergency reserve fund