Do you constantly get pestered by insurance companies through calls and messages, with new policy schemes? Well, insurances are important. Insurance is a kind of protection- for yourself, your family, your investments or your future. Life insurance, health insurance, property insurance, agricultural insurance, etc. are means to protect you in a case of financial loss or emergency- your car breaks down, someone dies or someone is ill, your house catches fire, you lose your business or even you lose your phone! When you buy a policy under some scheme issued by the insurance company, you make regular payments in installments, known as premiums, to the insurer. If you claim a loss, you have access to that money, only if your claim is covered by the insurance policy. With these, complex technicalities and terms & conditions, you need proper documentation and a solid reason to cash out your money.
Now talking about life insurances, what is a life insurance? “Life insurance is a protection against financial loss that would result from the premature death of an insured.” Obviously, seems important! When you buy a life insurance, you protect your family from any financial losses that would occur if you outlive. The most common myth is “Everyone MUST have a life insurance”. But if you have sufficient assets/passive income and your family will be able to survive after your death, do you really need a life insurance? There are three circumstances, in which you don’t need a life insurance: When you and your spouse have enough wealth to take care of themselves, when one of them dies; when the kids are grown up and are self-sufficient; and when you don’t own large lands, so you don’t owe any estate taxes (since life insurances provide you with tax benefits like income tax and estate tax exemptions).
After analyzing your current economic situation, if you propose to buy a life insurance plan, you need to consider another important point: whether you want to opt for a term policy or a permanent life insurance. What is the major difference? While term policies are designated to last for a fixed number of years (i.e. if you have a plan for 20 years, the insurance company would pay the death benefits to the named beneficiaries if you die within those 20 years), permanent policies last till you actually die. Term policies may expire even before you actually die. So for this reason permanent policies are more expensive than the term ones, even though they have attractive benefits like cash account that can be used for retirement and you don’t have to pay taxes on gains every year.. Whole life plans are for the rich; unless you earn around 25,000$ annually or have assets worth $1million, you should opt for the term policy.
Life insurance policies may appear tricky, but you should consult your financial advisor before you make a choice. Always take an informed decision, especially when this revolves around your life.
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