Life Insurance as a Source of Personal Finance - Research Paper Example

Life Insurance Life Insurance is an agreement through which an insurer renders an approval of a substantial amount to the insured in case of death due to reasons which include accidents and incurable diseases. Normally, the policy holder for a life insurance agreement can be any individual who is below the age of 70. It can also be regarded as the commitment of providing beneficiaries with an amount of monetary benefits on behalf of the death of the insured (Steuer, 2010). Based on this notion, the paper hereby intends to perform a brief study about life insurance and different advantageous activities of the policy. The discussion will also consider the correlation between life insurance policy measures and personal finances. Life Insurance and Personal Finance The conception of personal finance focuses on the impression of an individual towards his/her family financial preparations that also emphasizes on the core concepts of required financial decisions taken by the individual or the entire family. The required financial decisions involve a variety of aspects to be taken into consideration including insurance principles as a major facet (Besley, 2005). It is in this context that life insurance is often termed a vital facet of personal finance in the modern day phenomenon. Life Insurance as a source of Personal Finance Personal finance is one of the efficient financial applications considered while making financial decisions by any individual or family. The concept of personal finance possesses the efficient methods in which the individual or family are able to take decisions regarding future savings, expenditures and investments through insurance, budgeting as well as mortgages among others. The method significantly involves with the prediction for further requirements according to the present financial condition of the individual or family. Notably, the key elements of personal finance involve with the beneficial plans for the insurance holder assisting in the proper usage of the investments during financial crises (CDE, 2010). The elements can be categorized into five different segments such as the setting of financial goals, generating financial plans, assessing the financial plans, executing the plans, as well as periodic investigating and reassessing the financial plans. In the similar context, life insurance involves with the advantageous return plans according to the investment portfolio of the policy owner. The policy involves with the plans of providing benefits for the policy holder in terms of life coverage through monetary values along with tax exemptions and loan facilities. Therefore, life insurance tends to assist the insured with proper execution of investments made enhancing the efficiency of their personal finances (CDE, 2010). A considerable view in this regards suggest that the objectives of personal financing which concentrates on the proper allocation of financial resources to provide a financial strength through assurance to the family or dependents can be attained though life insurance facilities. The benefits of availing future financial needs including living expenses, education costs, and medical benefits, along with other additional monetary facilities such as loans and so on can be attained through life insurances (Hunt, 2003). Therefore, the benefits rewarded by life insurance can be termed as crucial for the successful attainment of the objectives considered with regards to personal finance. Advantages and Limitations of Life Insurance The advantages of life insurance through assured plans to provide with beneficial life coverage can be regarded as its ability or competency to generate cash value of life through insurance. It is worth mentioning that by regulating an economic value of a life, the agreement tends to mitigate the financial risks faced or likely to be faced by the direct and/or indirect dependents of the insured. It is in this context that in most cases, life insurances are considered in household as an assurance again any financial risks which are likely to be incurred due to the accidental death or life loss due to incurable diseases (Hunt, 2003). In the modern day phenomenon, tailored life insurance policies by various privately owned insurance companies also tend to reward with multiple benefits other than the economic coverage of life of the insured. For instance, through term life insurance, the insured can avail benefits in terms of loans for premium investments relating to mortgages. The insurance policy also tends to assist the insured individuals or families rendering extra economic benefits for educational expenses as well as automobile finance facilities along with array of other benefits. Other than these advantages, the life insurance plans also provide with financial assistance for medical treatments of the insured and at times, to the dependents as well. In order to encourage the natives to avail life insurance policies, governments are also identified to render taxation exemptions for the policy holders (Lankford, 2011). However, the life insurance policies can also impose certain limitations related with the payment mode or in terms of paying the premium amount by the insured person or family. It has often been observed that in relation to a few particular types of insurance policy agreements, the insured person needs to incur extra burden of costs owing to the periodic increase in the premium amount, mostly after every renewal of the policies. Therefore, it can create certain difficulties for the policy holder to pay an increasing amount of premium rates after every renewal for the same policy. Moreover, a few life insurance policies also do not offer cash value to the dependents of the insured person at the maturity of the policy or at the end of the agreement; rather those policies tend to focus on rendering other economic benefits in terms of financial assistance for educational costs, medical costs along with the loan facilities (Sovis Insurance Agency, 2012). Illustrations Life insurance for an individual or family is a particular type of personal financial program which provides a large numbers of benefits by offering a good amount of return according to the mentioned terms and conditions in the investment portfolio against the sudden death of the policy holder (Lankford, 2011). For example, if a person ‘A’ avails a life insurance policy with a term period of 20 years and dies due to fatal accident or incurable disease within the 20th year of the insurance policy continuation, then his/her dependents shall be beneficial attaining a cash value on his/her life. The policy also assures to support the dependents of the policy holder providing them financial helps for living expenses, educational costs and so on after his/her death. Other than this, the person ‘A’ will also be entailed to receive tax exemption benefits on his/her premium amount along with medical treatment facilities, loan facilities, and mortgage facilities among other major advantages through life insurance (Belth, 1985). However, a major disadvantage, as mentioned above, is the risk of alteration often witnessed by the policy holders in terms of increasing premium amounts. To be illustrated, if the person ‘A’ is able to pay the premium amount at the initial phase of the policy, he/she might become unable to continue with the policy owing to the continuously increasing rate on the premium amount for the same insured policy after every renewal. Gradually, the income capacity of ‘A’ may not be affordable enough to pay the premium amount and thus lead to the withdrawal or discontinuation of the policy (Sovis Insurance Agency, 2012). Conclusion The overall study of the paper includes a brief description of different benefits of life insurance along with a comprehensive idea of its limitations with regards to personal finance. The life insurance is one of the supportive plans for earning benefits on the invested amount in terms of premium paid which can be regarded as taxation discounts, loan facilities, and mortgage advantages. It is in this context that the various objectives of personal finance can be substantially attained with the advantages of life insurance policies by the insured individual or family (CDE, 2010). However, along with various advantages, life insurance policies can also impose certain disadvantages on the policy holder in terms of increasing premium amount charged as well as alterations in the policy measures before the maturity of the agreement. It is due to this reason that policy holders should be more careful regarding the terms and conditions informed while investing in life insurances. References Belth, J. M. (1985). Life Insurance: A Consumer's Handbook. United States: Indiana University Press. Besley, S. (2005). Personal Finance. Retrieved from http://www.cae.edu.sg/personalfinance.pdf CDE. (2010). Personal Financial Literacy Expectations. Retrieved from http://www.cde.state.co.us/action/downloads/PFL_addendum_final.pdf Hunt, J. H. (2003). Variable Universal Life Insurance: Is it Worth it? Retrieved from http://www.consumerfed.org/pdfs/VULReport0203.pdf Lankford, K. (2011). Life (Insurance) Begins At 50. Retrieved from http://www.newyorklife.com/newyorklife.com/General/FileLink/Static%20Files/KIPLINGERSLockinRetirement.pdf Sovis Insurance Agency. (2012). What are the Advantages/Disadvantages of Term and Permanent Life Insurance? Retrieved from http://www.sovisins.com/images/What_are_the_advantages-term_vs_permenant_life_ins.pdf Steuer, A. (2010). Questions and Answers on Life Insurance: The Life Insurance Toolbook. United States: Greenleaf Book Group. Read More