Benefits of life insurance

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The subscription of any individual to a life insurance cover is motivated by the multiple benefits that the subscriber or the policy beneficiaries expect to derive from the scheme at its maturity. Life insurance covers can be full life covers or specific term life covers. Benefits of life insurance policies exist in a broad scope ranging from financial, social and economic benefits.

Tax planning: Many countries legal systems allow a tax relief up to a certain percentage of the premiums paid to a life cover policy. Individuals who subscribe to such policies enjoy the benefit of reduced taxes. The motivating factor for the tax reliefs is that it increases with the amount of premium paid. Another contributing fact towards tax planning is the non-taxable dividends earned by policy. These dividends are considered as returns on premiums paid.

Ability to borrow against the policy: Subscribers to life insurance policies enjoy the right to borrow money against the nominal cash value of the policy. These loans are usually accompanied by relatively lower interest rates compared to the prevailing bank interest rates. Some insurance providers also provide the option of setting off the loan from the amount payable to the beneficiaries at maturity of the policy. This opportunity serves to add on to the financial security of the insured person especially in times of emergencies. The policy subscribers can also offer their policies as security for other people who would like to borrow loans.

Due to the reduced life expectancy and the emergence of numerous life threatening risks, dependents of an individual are always afraid and insecure about how the future could be in the event of the demise of their breadwinner. A life insurance policy will best serve to alleviate these worries and induce a sense of hope and optimism by providing economic security for the future. A life insurance policy acts as a source of motivation for the dependants and beneficiaries to face the future with utmost confidence and focus. For instance, a student in college will not be worried about who would pay their fees in case their guardian passes on. Such an individual will, therefore, concentrate on academics rather than worries about an unsecured future. The amount payable to the beneficiaries at maturity of the policy is usually predetermined before or at the inception of the policy. This implies that the life insurance covers attract a guaranteed death benefit for the beneficiaries. This is, however, true if the contributor has not defaulted in paying the premiums. This guarantee arises from the fact that death is compulsory and the policy is meant to mature at some point in time. This is unlike other covers such as accident insurance covers whose maturities are probabilistic: may or may not occur.

Term life insurance policies can serve as an appropriate saving avenue for the individual over the term period. This is an ideal form of saving towards certain goals in life especially for those individuals who lack the own financial discipline to save in their bank accounts. The ability to access one’s own money at any time during the policy term increases the financial convenience for the individual. Life insurance policies also provide a reasonable financial flexibility. The insured value can only be varied upwards at the discretion of the policyholder. This upward flexibility occurs when the policyholder decides to increase the premiums paid against a higher insured value. This factor is a control against de-saving one’s own savings already pumped into the policy. Life cover policies are usually identified with level premiums which imply that the rate of contributing towards the scheme will never vary throughout the policy term. There is a guarantee for money growth on yearly basis despite fluctuations in the financial markets.

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