The advantage of life
insurance over other types of savings instrument available in the market are as follows
1) Creates an Estate: Life insurance policy
creates an estate. At any point of time the value of any other type of saving is the
total accumulation in that account only. If the savings holder unfortunately
dies, the amount available to the dependents is the accumulation only. In case of the life
insurance the moment a policy is taken
an estate in created to the extent of the sum assured under the policy i.e. if
the policy owner dies, what becomes payable to the dependents is the sum
assured the total value of the state
and not the total premiums paid.
2)
Encourages thrift: Life insurance
encourages thrift i.e., forced and
compulsory savings. In case of other types of savings. the moment persons
feels the need for money, there is great attraction to which money from the
savings accumulation. The purpose for which the savings accounts is opened is
seldom fulfilled for that reason. in Life insurance policies there is a
built-in discouragement to withdraw.
Only surrender value which is a
small percent of the premium. paid will be available to the
policy owner if he wants be to withdrawn
. The policy owner thus is forced to continue
payment of premiums and never try to surrender a policy. This will
ultimately fulfill the purpose fore
which the policy was purchased.
3) Gift to near and
dear: Life insurance policies cannot be attached by any court of law or
income-tax authorities. A married man
can take a policy under married Women’s
Property Act for the benefit of his wife and / children separately and create
separate estates for their benefits. Once a policy is obtained under his legislation the policy
holder will not have any hold or right over it. Life insurance thus can
be used as a gift to the near and
dear.
4) Protection against liquidation
of property: A Life insurance policy can be utilised
as a collateral security for a housing loan. In case of unfortunate
death of the policy owner, the amount available
under the Life insurance policy is adjusted towards the outstanding loan and interest and the house is released
to the beneficiaries without any
encumbrance. Without such a facility the family will have to self sell the
house in the open market to clear the loan. It will be a distress sale and so
would fetch only a fraction of the real market value of the house. Life insurance thus affords
protection against forced liquidation of property.
5) Acts
as an Emergency fund: If immediate
liquid cash is needed a policy of Life insurance can be against to the
Life insurance company, a Bank or any other financial institution as security
for a loan.
Life insurance thus
can acts as an Emergency Fund. banks today grant educational loans to students
for higher education. They insist on a Life insurance policy as a
collateral security. 6) No stamp duty: Transfer of property contained
in a Life insurance policy does not attract any
stamp duty like other property. It can be done by an assignment under sec. 38 of
Insurance Act 1938, either by an endorsement on the back of
the policy document or on a stamp
paper. 7) No tax on proceeds of policy: The processed
of a Life insurance policy including any
bonuses paid are not liable for income tax.
8) Tax Exemption: For gaining income tax exemptions under Sec. 80C of
Income tax act, a person, can pay
premiums under policies is the on
his /her life or an the life is spouses
or children, whether major of minor married or unmarried.
(9) Simple claim settlement: Settlement of a
claim under Life insurance policies is very simple. In case of a death claim, the nominee receives the
policy moneys. Incase of survival of the
policy holder till the date of maturity
of the policy, the maturity claim is paid
to the policy holder himself.
10) Safe method of Investments : Life insurance is a safe and profitable investments. The
IRDA constituted by the Govt of
India in 1998 keeps a constant watch and vigil over the financial positions
of the Life insurance companies. There
are strict solvency margins to be maintained by the companies. The IRDA pays
special attention to the safety of the
moneys paid by the policy holders. thus life insurance provides a safe method for investments especially by the middle
class. 11) Effective management of
funds: One of the important criteria for
investments of funds, apart from safety and liquidity is management of funds. A
life insurance company will have the necessary experience and
expertise in this field and a policy holder gets the benefits of the same
entirely free. Moreover the policy holder will be free of all tensions.