What is life insurance? Advantages and Disadvantages of Life Insurance
What is life insurance? Advantages and Disadvantages of Life Insurance
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| What is life insurance? Advantages and Disadvantages of Life Insurance |
Life insurance is an important financial contract that provides financial security to your loved ones in case of your unexpected death.
Life insurance is a contract between an individual and a company, where the policyholder pays a fixed premium, and in return the insurance company makes a lump sum or monthly payment as per the terms of the policyholder's death.
In this article, we will discuss all the advantages and disadvantages of life insurance.
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What is life insurance?
Life insurance is a contract between the insurer and the policyholder where the policyholder pays a fixed premium in exchange for the insurer paying a lump sum or contractual cash to the heirs of the policyholder on the unexpected death of the policyholder.
Note here that the insurer is the insurance company, and the insured is the beneficiary.
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| What is life insurance? Advantages and Disadvantages of Life Insurance |
Benefits of life insurance
Life insurance has various benefits that depend on the insurance premium and insurance policy.
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Below are the benefits of life insurance:
1. Financial Security: The main advantage of life insurance is that it provides financial security to your heirs if you die. Post-death can be used to pay off debts, cover funeral expenses and help maintain your family's standard of living.
2. Tax benefits: Life insurance policies offer tax benefits as well as financial benefits. Life insurance money is usually paid tax-free, meaning the beneficiary does not have to pay any tax on the money. On the other hand, the gain on the premium before the death of the policyholder is also tax-free, thereby increasing the cash value.
3. Cash Value: Permanent life insurance policies have a cash value. Its cash value will increase over time, while if you need it, you can take it as a loan or cash out by canceling the policy. A life insurance policy can be an important financial tool in times of danger.
4. Business protection: Life insurance policies can provide financial support to businesses. In payment of business debts on your death and can meet the claims of the partners as per the agreement in the case of partnership business.
5. Equitable distribution of property: Life insurance policies can be used to provide equal property to heirs. If your estate is difficult to divide equally among your heirs, life insurance can be used to provide cash payments to intended heirs who do not receive the assets.
Why should you have life insurance?
It is important to provide life security to everyone who depends on you. If you have family members who are financially dependent on you, life insurance plays a key role in providing them financial security after your death. It will also help them improve their standard of living along with debt repayment, burial expenses.
Is life insurance halal in Islam?
Insurance in Islam is a controversial topic. Some researchers consider insurance to be haram because it involves paying interest rates and uncertainty. However, many Islamic financial institutions offer Takaful securities, which are deemed to comply with Islamic principles.
Importance of life insurance
Life insurance is essential for your family members who depend on you financially. It provides financial security and your dependents to maintain their standard of living even if something unexpected happens to you.
Disadvantages of life insurance
Although life insurance has many advantages, it has some disadvantages that should be considered. Life security premiums can be expensive, especially for older people.
Some of the disadvantages of life insurance are discussed below:
1. Expensive: Considering the premium and coverage amount, life insurance policies can be expensive in many cases which may not be affordable for everyone. Paying premiums can be difficult, especially for the lower and middle class.
2. Complex: Sometimes insurance policies may not be easy to understand. Sometimes it becomes difficult to understand the coverage terms and policies. In that case, one should understand the policy well and consider the coverage conditions before signing the contract.
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3. Limited coverage: Life insurance policies usually provide limited amount of coverage. If you or your family is heavily indebted, it may not be possible to pay off the entire loan with its coverage.
4. Tax Exempt: In most cases, life insurance premiums and coverages are tax-exclusive. This means that the future coverage you will get from the life insurance will not include the taxes owed by the government.
Conclusion
Life insurance is an important financial contract that provides financial protection to your loved ones in case of your unexpected death. It has many benefits including tax benefits, cash value and business protection. Although it has some disadvantages, considering the advantages it is an essential tool for any human being.
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Frequency Asked Question
Q: Who needs life insurance?
Answer: Life insurance is essential for people who have dependents on whom all the responsibilities, including finances, rest on that person.
Question: How many types of life insurance are there?
Answer: Generally there are two types of life insurance, 1. Term Life Insurance; 2. Life Insurance
Whereas term life insurance pays a premium for a fixed period of time, lifetime insurance provides coverage to the policyholder.
Q: How much life insurance do I need?
Answer: How much life insurance you need depends on your personal objectives. The number of life insurance is determined by considering your income, number of dependents, debts.
Q: What factors affect life insurance premiums?
A: Life insurance premium depends on few factors like income, age, occupation, purpose, type of policy, coverage etc.
Question: What is the difference between term life insurance and whole life insurance?
A: Term life insurance pays premium for a fixed period of time.
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