What is life insurance

Life Insurance is a formal contract between the policy holder and the insurance company wherein the policy holder gives small payments at regular intervals known as premium to the company and a death benefit is insured on the unfortunate demise of the purchaser of the policy, called as policy holder.

It is imperative for a person to have life insurance as it financially secures the family of the person during the time of loss and does not put them in a tight spot in terms of money. Buying life insurance should not be an option; it should be done compulsorily by people. In spite of this, people tend to buy life insurance just to save taxes which is why the highest number of policies are bought during the last few months of the financial year. This is indeed, a sad state of affairs, considering that life insurance should be purchased for the various advantages that it gives us and not because it saves taxes.

Now that you know what life insurance is, let us discuss some of the benefits of life insurance for which it must be taken:

• To protect family after death: On the unfortunate death of a person, the family members who were financially dependent on the policy holder will not have to worry about the day to day expenses or big financial commitments because of the death benefit that will be given by the insurance company to them (the nominee). They can live tension free life because the insurance policy would take care of the finances.
• Child's Education: There are several ways of saving up money for your child's education and child life insurance can be one of them. The payouts of insurance can be a pretty good supplement for your savings and it can help your children to get through school or college education without any loans.
• Diversify Investments: Some people use insurance as a class of investment. Insurance policies taken for investment purposes are tied to a specific investment product, like equity or debt products. These products are known as unit linked insurance plans and one can choose a suitable plan based on ones risk taking appetite and investment goals. In order to take the right plan, one can consult a financial advisor for assistance with type of policy to be purchased according to his/her needs, financial goals and current financial position, etc.
• Estate Taxes: After the death of a person, when his/her dependent inherit the property, they usually have to pay huge amounts of estate taxes. This issue is eliminated with the help of the life insurance premium as it can be used to cover this heavy expense. Hence, the burden on the family of the deceased is reduced.
• Cover Debts: A person might have taken loans like car loan, home loan, personal loan and education loan in his lifetime but if he/ she meet with an unfortunate death, the debts, of course, still remain. The family, unfortunately, has to bear these loans on his/her behalf. This can be prevented if adequate life insurance cover is taken (covering the entire debt amount) by the policy holder.
• Life Insurance Cover is affordable : Contrary to common saying, life insurance can be affordable if the person chooses the right kind of policy for himself/herself. One can buy a term insurance online in order to prevent high cost of insurance. It ensures that no intermediary is involved in the process of this insurance purchase, and therefore, it eliminates unnecessary expenses. When these steps are taken, life insurance cover becomes affordable and easy to purchase.

One should make sure that insurance is not purchased just for the purpose of saving taxes but it should be taken for protection of the family and being tension free about their financial well being post the demise of the policyholder. Benefits of life insurance are immense and once must explore and understand the true meaning of life insurance.