Everyone purchases a life insurance plan for different reasons. But the purpose of having this plan is the same, and that is securing the future of yourself and your loved ones. Because when you buy a life insurance policy, it offers financial security by giving a death benefit to your designated beneficiaries.
But the question is, “Is life insurance for life or death”? If you are getting it to secure the future of the ones you care about after death, then you might be wrong. Or maybe you think life insurance is all about handling your and your family’s daily life needs like bill payments, educational expenses, etc. Then please rethink!
Life insurance is neither solely about death nor for your daily life expenditures, it also has various purposes during your lifetime and after your death. In this blog post, we will discover various aspects of life insurance, its benefits, and how it will be a source of mental peace for the policyholder and their family.
What are the purposes of a life insurance policy in your life and after death?
Here we will understand the purpose and benefits of getting a life insurance plan.
The Primary Purpose of Life Insurance (Financial Security)
Life insurance is meant to provide financial support to your loved ones or dependents in case of your death. You sign a contract with the insurance company when you get a life insurance plan. You have to pay regular premiums to the insurance company. In return, the insurer promises to pay your beneficiaries a predetermined amount, called the death benefit, upon your untimely death.
The beneficiaries can use the death benefit according to their need and expenses. They can also use it to cover immediate expenses like funeral costs, outstanding debts, or daily living expenses. Life insurance plans offer an important financial safety net during hard times. It ensures that your family can maintain their standard of living and meet their financial obligations accordingly.
Additional Benefits of Life Insurance
While the primary purpose of life insurance is to give financial security after the policyholder’s death, some policies also offer additional benefits and features to their plan. These features can be valuable during the lifetime of the policyholder. Here we will discuss some of them:
Cash Value Accumulation
Different types of life insurance, like whole life or universal life insurance, have a cash value component. A portion of your premiums goes into a cash value account that grows with time. Surprisingly, you can access this cash value during your lifetime via loans or withdrawals. In this way, your life insurance policy provides you with funds for certain purposes, such as education expenses, supplementing retirement income, or handling emergencies. However, remember that accessing the cash value may reduce your death benefit.
Some insurance companies also offer living benefits called accelerated death benefits. These benefits allow the policyholder to get a portion of their death benefit while still alive. If they are experiencing a severe event like an extreme illness or critical medical condition, they can take advantage of living benefits. It helps them cover medical expenses, long-term care costs, or any other financial needs during difficult times.
Estate Planning and Legacy Preservation
The life insurance policy also plays a very important role in estate planning. It allows them to pay estate taxes while ensuring that heirs are not burdened with a large tax liability. Moreover, a life insurance policy can also be used to leave a financial legacy for future generations, provide charitable causes, or equalize inheritances among family members.
Mental Satisfaction while providing Financial Security
Life insurance offers you more than just financial support. It provides peace of mind to the policyholder, knowing their loved ones will be cared for after their demise. It reduces your concerns about leaving a financial burden on your family members, allowing them to heal and return to normal without financial stress.
A life insurance policy can be a lifeline for families during emotional and financial trauma. It ensures that dependents, like spouses, children, or elderly parents, will be financially stable and able to maintain their living standards because a life insurance policy can cover mortgage payments, educational expenses, and even ongoing household bill payments.
Some Common Misconceptions about Life Insurance
Here are some of the common misconceptions about life insurance:
Life Insurance is Expensive
One common misconception about this insurance policy is that it is unaffordable. But that’s not true. However, life insurance costs vary depending on factors like age, health, type of policy, and others. Many affordable options are available too for different budgets.
Young Individuals don’t need Life Insurance
Life insurance is mostly associated with older individuals or those with health concerns. However, buying life insurance at an early stage may offer you several benefits, such as lower premiums and long-term financial planning opportunities.
Employer-Provided Life Insurance is Sufficient
Relying only on employer-provided life insurance may not be sufficient because these policies have limitations and may not cover all financial obligations. In addition, this policy coverage may be lost if you change your job.
Life insurance policy goes beyond the division of life or death, as it encloses various benefits and purposes throughout an individual’s life. From providing financial protection to your loved ones in case of your death to offering living benefits and other customization options, life insurance greatly protects your financial future.