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Life insurance planning is a must for every family to protect their current standard of living due to sudden demise of the bread earner of the family resulting in a total income loss.
Life insurance is important for the one who wants to protect his family from financial distress arising due to his untimely death. It can be used to provide financial security for the loved ones.
The proceeds from a life insurance policy are paid to the nominee / beneficiary on a tax-free basis, which provides a lump sum which can be used for meeting the expenses of the family. Depending on the type of policy chosen, life insurance can also provide a savings component for the policyholder.
The main reason one should consider behind opting for a life insurance cover is to protect the various social & economic needs of his / her family. Having coverage in place is especially important during the policyholder's main earning years. During this time, he or she may have major expenses such as a housing loan EMI, car loan payments and the like.
He or she may have young children that need to be cared for, educated & married off, and / or aging parents who require assistance. The money coming from the insurance can be used to provide the son a good education & a good start –in-life, the daughter can get good academic achievement and can look forward to marry her prince charming, wife can get her own house and can take care of the basic necessities of the family.
The death benefit that an insurance policy provides is meant to replace the income so that the policyholder's family is less likely to have to face a major lifestyle downgrade in addition to dealing with the loss of someone who was very important to them. Most people are generally underinsured.
Ideally, the level of protection chosen should be enough to replace the surviving spouse’s all financial needs like family pension, children’s education & marriage provision, loan repayment etc.
The death benefit that is paid out under a life insurance policy can be used for any purpose the beneficiary deems appropriate. It's very common for the proceeds from the policy to be used to pay the loans and debts the deceased has left behind. That way, his or her survivors are not put under financial burden.
Proceeds from a life insurance policy ensure continuation of the economic potential of the bread winner. If the policyholder has young children, the money may be used for childcare expenses or to hire a housekeeper or a nanny. The funds can also be used to pay for higher education for the insured's children.
The insurance money creates an estate which provides the average income needed by the family to maintain the standard of living that they were accustomed to. The funds can also be invested to provide a source of income for the surviving spouse or partner in retirement.
Some types of life insurance plans have a savings component as well as provide protection if the policyholder passes away. When the person chooses a permanent, universal or whole life insurance policy, part of the money that he or she pays in premiums is used to fund an investment savings plan. The money grows over time and the policyholder can use the money coming to him in a lump sum or via ‘money back’ mode for meeting the set goals of the family.
One can get a policy loan too if some need arises before the maturity of the policy.
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