There’s always that question which lingers at the back of your minds – ‘What if?’
- ‘What if’ you don’t have enough finances to provide for my family?
- ‘What if’ you lose your job?
- ‘What if’ you die?
Will your family be able to hold-up when the bread-winner of the family is not there? Will those loans you’ve taken haunt your family’s financial stability? Will your children get the education you planned for them?
These questions are not uncommon, and certainly not pointless. Life is uncertain, and it can present any event at any time. The only way to deal with this uncertainty is by being prepared. And, hence the life insurance policy.
Let’s dive deeper into the details of the life insurance policy and benefits of it.
What is a life insurance policy?
Essentially, a life insurance policy is a contract with an insurance company. The insurance company provides a lump-sum payment, known as a death benefit against the premiums you pay over the years. This lump-sum payment is issued to your nominees upon your death.
What the advantages or benefits of Life Insurance?
- Life insurance essentially offers an infusion of cash which helps to deal with the financial crisis of the family. This comes in handy, especially after the death of the bread-winner of the house.
- When it comes to tax, unlike other financial instruments, the life insurance policy also enjoys favourable tax treatment.
- The death benefits offered by this policy are income-tax-free to the beneficiary. However, the percentage of tax exemption may differ from policy-to-policy.
- If all the terms and conditions of the policy are fair, and if the policy is owned correctly, death benefits may be estate-tax free.
- Since the tax defers during the insured’s lifespan, the cash value of life insurance policy grows.
- The life insurance policy offers cash value withdrawals on a first-in-first-out (FIFO) basis. Tax is exempted on the total premiums paid.
- Furthermore, the loans which the insured avails against the life insurance policy are income tax-free.
- As the insured, you can also exchange the life insurance policy for another one or annuity. This exchange will not be affected by the incurring current taxation.
Many life insurance policies are exceptionally flexible, especially when it comes to adjusting to your needs. It offers to provide accessible funds if the need arises. However, these asset backing funds are generally presented as your longer-term investments, which therefore allows you to earn a higher return.