Life insurance refers to the financial coverage made for contingency related to the life of a person, like accident, disability, retirement and death and so on. Human life has many risks related to disability and death because of both accidental and natural factors. When a person loses his/her life or becomes temporary or permanent disable, his/her family members also suffer a big loss in the household income.
Even though we cannot value the life of a human being, life insurance policy may determine and calculate a suitable monetary amount according to the suffered income loss in the near future. Life insurance packages thus give a definite amount of money to the policyholders in the case they die or fail to work again because of an accident.
Factors to Determine the Required Amount of Life Insurance
The exact amount of any life insurance coverage a person requires depends on different factors, which include the following-
- Numbers of dependants present in a family
- Type of lifestyle you want to give to the family
- Amount you require for the education and better future of your children
- Your affordability and specific investment requirements
You have to take help from a broker or an insurance agent to understand the specific insurance requirements and get recommendations on the right coverage type. You can also read our other post to Know the Quick Steps to Get Life Insurance
Objectives of a Life Insurance Policy
Life insurance is essential to meet the following objectives-
- To make sure of providing the necessary financial support to immediate family members in the unpleasant event of your death
- To provide the necessary finance for education and other requirements of your children
- To have a future saving plan and thereby, make sure of a constant income source post retirement from job
- To make sure of additional income when the earnings become low because of accident or severe illness
- To provide essential financial contingencies as well as lifestyle-related requirements
How Life Insurance Policy is Beneficial
Major benefits of buying a life insurance policy include the following-
Look after the Loved Ones Even When the Person is Gone
This is an important aspect associated with life insurance policy. Your family members depend on you even when you are gone. Indeed, you never want to make them suffer after your death. Whether it is for the replacement of your lost income, payment for the education of your child or assurance of financial security for your spouse, life insurance saves your surviving dependants.
Helps in the Achievement of Long-term Goals
We all know that life insurance is an investment to keep your long-term investments safe. Hence, the policy will help you achieving the long-term goals, like planning your retirement or purchasing a new property. Besides, an insurance policy gives you varieties of investment options, which are available with various types of policies. A few of the policies have connections with specific investment-related products responsible to pay dividends according to their performance.
Deals with Your Debts
You never want your family dealing with financial liabilities at the time of crisis. Positively, buying the right life insurance policy takes care of your outstanding debts easily. These include personal loan, home loan, auto loan or loan taken on credit cards.
Supplements Your Specific Retirement Goals
With the help of an appropriate life insurance plan, you make sure of a regular income stream monthly. Investing your money in annuities is similar to pension plans. Accordingly, you have to put some amount of money regularly in your life insurance policy and enjoy a stable yet steady income monthly even after you retire from the job.
Takes Proper Care of Your Business
Life insurance is not only helpful for your family members and you. Instead, such insurance policies also take proper care of your company or business. If you have a small business venture, your business partner gets a chance to buy a specific part of the business in a hassle-free way. For this, the business partner/partners have to sign a buy-sell agreement, while the payment will go directly to the nominees of the deceased partner that too without providing them any stake in the company.
We know that life insurance policies are of two different types i.e. a life insurance policy and a term insurance policy. Even though we are aware of the benefits of such policies after death, we have relatively less knowledge about options lying out to strengthen our financial position. Accordingly, a term insurance protects for a specific period i.e. 10years, 20years or 30years and gives payment to the benefits only when the policyholder dies during his/her specified term. The policy will thus expire and the coverage will end in the case the policyholder outlives his/her insurance policy. On the other side, a combination of investment and protection plan gives a lump sum amount when the policyholder completes his/her policy term. These plans also give protection but the coverage is relatively low as compared to term plans.