What Are The Main Advantages And Disadvantages Of Life Insurance?

Tax Saving

In many countries, you can offset the premiums that you pay for life insurance policies, in your taxable income.

Another benefit is that, the maturity amount is also not taxable in many countries.

Financial advisers widely suggest to go for insurance plans in order to reduce tax burden.

Coverage Flexibility

Life Insurance can cover you until you have enough of a corpus for your dependents. The policies are available in different terms like 5 years, 10 years, 15 years, 20 years etc.

The premium amount that you pay will depend on the size of death benefit, policy term, your age, your health condition, medical history and so on.

For instance, if you already have $50,000 in your savings for your family and you still need another $500,000 to make them comfortable after you die, and if you can save $50,000 per year, you will need another 10 years to reach the target.

In such a situation, you can opt for a life insurance policy that has a term of 10 years. Thus, you can leave your worries to reach your target.

Insurance For Your Life

Many people mistake life insurance as an investment, but in reality it is an expense but not an asset. The main reason behind a life insurance is to offer a good amount of death benefit to your loved ones after your demise.

Hence, your family would still lead a comfortable life even when you are not around them.

Term Policies are Simple

Life insurance policies, especially the term insurance is very simple and easy to understand. Also, it is very cheap when compared to other products.

When you expire within the term period of the policy, the insurance company approves the claim without any clauses or conditions.

Goodness of Universal and Variable Policies

These policies are generally the ones that fleece the customers and are quite complicated. However, they do prove to be advantageous in certain niche cases. The best part of these type of policies is that they offer you interest amount over the cash value of your insurance.

In the case of variable insurance policy, you can take the advantage of changing the premiums of your insurance. However, remember that mortality calculations are quite complex and most of the times, they prove to be uneconomical.

Security by the Government Regulation

To ensure that insurance companies have enough assets to cover your liability, government regulates insurance sector thoroughly. Hence, there is no chance of fraud for your family after your demise.

You can be at peace of mind and leave worries about the company getting bankrupt.

Government ensures that insurance companies don’t fail and close unlike banks. If it all happens, then the government will take over the responsibility of covering the liability.

Less Beneficial as an Investment

Cons of a life insurance policy are almost negligible.

However, if you use insurance as an investment product then, you would surely be at loss. This is because, the premium payments turn out to be uncomfortable for the policy holders. Moreover, the returns are uncertain.

Humans psychologically feel that when they are making payments with their hard earned money, they should get something in return. Unfortunately, they underrate the chances of their decease.

Some policies give sub optimal returns

Certain complex life insurance policies like endowment, ULIPs, child plans etc. give sub optimal returns.

There is no surprise to say that most of the people who buy these policies actually do not understand them. Agents promote these products simply to reach their targets and earn commission.

Expensive policies create burden

Before you buy a policy, you should also ensure that you will not be burdened in the future.

Sometimes, you tend to take wrong decisions when you are in a hurry or when you don’t make proper research or comparison of all the other available insurance policies.

If you take a wrong decision, you would need to take on the burden of heavy payments throughout the policy tenure, which is actually not required.

Wrong selection is a loss

People need to know how to get benefit from insurance policies. For instance, if you buy a term policy which would expire when you are almost 80, then it is a wrong decision.

This is because, at that age, you would have no dependents who would take the support of your earnings. Hence, wise analysis needs to be made on age and term linked with the policy in order to keep yourself on the benefit side.