What Is the Purpose of Life Insurance?
August 8, 2016
The purpose of life insurance is for the living. Without life insurance, the future may be grim. The need for life insurance comes about when a person wants to make provision for their family when they pass on. A lump sum paid out will cover things such as a mortgage bond and also provide an income for the household after the death of the breadwinner.
The life company pays out the cover when you die. It is important to plan ahead so that the necessary funds are available when death occurs. Depending on the type of policy you have, you can also increase your coverage or purchase additional policies to enhance your protection. When you sign up for a policy, the cover you get and the way it is paid out will depend on your financial situation and your needs.
Make Sure Your Family’s Lifestyle remains Intact
What many people don’t realise is that life insurance isn’t for the insured but rather for the deceased’s family members. It is to ensure that their lifestyle remains much the same as when the breadwinner was still around providing for them.
Term Life or Permanent Life?
Each type of life insurance offers different protection. Term life insurance provides protection for a specified period, anything from 10 to 30 years. There is no cash value with term life cover. Permanent
life insurance lasts for the entire life of the insured. This life insurance policy has cash value, and the company guarantees the payout at the end of the plan. You can borrow against the policy’s cash value to pay for sudden expenses.
Real Purpose of Life Insurance
The purpose of life insurance is to provide for your next of kin financially. It is also for wealth accumulation. The idea is to review it from time to time to make sure it is still meeting your overall needs. If you have started a new business, you now have children or lost your job for instance; these aspects can influence your cover.
The purpose of life insurance is multifold, and while the most important one would be to provide for your family, it can also pay for your funeral costs. Also, if the policy is a whole life policy, it will build up cash value which you can borrow against if needed.
Life insurance offers protection. A policy for life insurance can:
- Protect your family and their future. It can provide an income which can be used to pay a mortgage off, to pay for children’s education and to pay off debt. Insurance to cover the mortgage may be sufficient without kids, but when children come along, you may want your policy to provide an annual income and a lump sum.
- Once you receive a payout, the beneficiaries can use the funds in any way they see fit.
- Some policies have useful features which prevent the plan from ending if you become unemployed.
- Policies that build cash value allow you to earn income from that sum.
- Some people like to buy such insurance for a child. They purchase a rider and add this to the policy.
Don’t be an Unwary Investor
With a life insurance policy, payouts go into your estate with other assets and investments. They distribute these among the heirs. Make sure that when you review your life insurance, you also review your beneficiaries. When you are investing your money, make sure also to consider and check the track record of the insurance company. To make sure you provide for your family for when you’re not there, go for life insurance backed by the most reliable financial institutions there are.
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All info was correct at time of publishing