In a risk centered society, filled with numerous unpredictability. Life assurance is certainly imperative. Indeed it can be done by anybody and has proved to have a myriad of essential functions and benefits.
However, it is important to note that Life Assurance is an umbrella term covering a range of policies dealing with different types of personal protection.
The different types of the life assurance present are whole life insurance, income protection insurance, critical illness insurance, accident sickness and unemployment insurance.
The most common factors influencing life insurance premiums are age, gender, health status, tobacco usage, occupation, habits, hobbies, physical attributes such as height and weight, your family’s medical history and the length of the policy.
Importance and Application of Life Assurance
Its main purpose is to provide payment in the event of death, however; this is also one of its biggest misconceptions. This is because people deem it to just cater to their family in their absence.
However, its principal uses are very much more varied and are discussed below:
Clearing Debt
Depending on your policy and the amount you want to be paid in a lump-sum, life assurance can actually cover credit card bills, loans, and mortgage payments, meaning once your deceased, your beneficiary can use this tax-free sum to cover your liabilities and debt. Additionally, it can also be a continual source of mortgage payments upkeep.
Generating Income
Most life insurance policies offer annuity. An annuity is a financial product designed to boost the individual’s fund portfolio. It is essentially a contract requesting a lump sum or a series of regular payments. The payments (annuity) can be invested into commodities such as Oil, Gold, Energy and other Material properties in the expectation that more revenue is generated thus increasing the value of your annuity.
In a later stage such as the retirement period, an annuity can be purchased back to provide a regular source of income or once the insured is deceased, periodic payments usually, annually can be made to the beneficiary. Therefore, the greater your annuity value, the higher your source of income.
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Inheritance Tax
Inheritance tax, also known as “death duty” is an imposed tax on someone who inherits a property, estate or money.
Although, it is important to note that not everyone is required to pay for it. For instance, in the UK, this tax is only enacted when the assets, estate, property or gifts exceeds the threshold of £325,000. This tax is payable at 40% on the amount over this threshold. However, it is can be reduced to 36% if the estate qualifies for a reduced rate due to charitable donations made. As aforementioned, this tax can sometimes be very substantial.
However, with life insurance, premiums are paid every month to ensure the UK governments are paid regularly. It’s essentially the insured paying the tax in advance.
Protecting Stakeholders
The large transnational company essentially take out a life insurance on valuable and influential employees such as executives, the board of directors and managers. Those who essentially make influential decisions and whose death would have detrimental impacts on the operations of the business.
It is done to protect the company against the financial cost of losing an eminent employee, the risk of recruiting, retraining or replacements as well as financial obligations in reclaiming stock upon the death of an owner. This is known as corporate owned life insurance (COLI). It is widely practiced in America; however, it has become incredibly popular in other countries.
Sole Proprietorships and Partnerships
A sole trader or an entrepreneur embarking on a new business proposition fundamentally can set up a life assurance scheme to ensure his entrepreneurial pursuits are taken care of in case of death. Until a more concrete managerial option is present. Likewise, partnerships can also set up life assurance on partners in case of death.
This prevents half the tenure going to a disinterested heir of the deceased partner.
Funeral Expense
This provides you with enough money for funeral arrangements whether it’s a burial or cremation. The revenue generated from life assurance can cover a range of expenses regarding the deceased burial.
Gifts and Charitable Donations
A feature of life insurance is that it can often provide you with the allowance to donate to your preferred charitable organization. You get to decide how much is bequeathed, how regular the payments are and sometimes decide on the specific cause the money is used for.
Similarly, it can be made as a form of offering or tithe to the Church or as a part of your zakat as part of your religious duties. Alternatively, if one does not have a religious organization, many prominent charities can benefit from your generous contributions.
Family Support
As the breadwinner and the main source of income, you cannot help but worry about your spouse and children. By administering to a life assurance policy, you can, however, ensure that your family is taken care of, in the case of your departure.
This means their lifestyle can still continue, a regular source of income is present and your children can be kept in education and their university expenses are covered. Furthermore, if your partner is unemployed or a devoted housewife, there are numerous policies that govern and cater integrally for their role.
Overall, life assurance is very important. The ability to plan ahead with your spouse and kids kept in your long-term prospects is really an honorable and responsible action.
“Planning ahead is a measure of class. The rich and even the middle-class plan for future generations, but the poor can plan ahead only a few weeks or days” – Gloria Steinem.
This quote simply can be applied to life assurance, as it really encourages you to have an inheritance to give to your beneficiaries- namely your spouse, children and even grandchildren. Essentially it allows you to protect your family’s financial stability and plan effectively towards an event we all know is inevitable and incalculable. Death doesn’t leave a date, time or occur at a guaranteed time of financial stability.
