Understanding the Uses of Life Insurance Plans

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Life insurance plans are an integral component of a stable and well-versed risk management portfolio. Life insurance plans ensure that your loved ones are financially safe and secure when you are not around to look after them. Life insurance policies not just provide financial cushioning but also provide peace of mind to the insured party.

Life insurance plans are one of the most vital decisions one should take in the direction of personal finance planning. There are a plethora of uses of life insurance policies and one should ideally choose a plan based on their requirements and goals in life. If you are planning to get a life insurance policy in the UAE, you are in the right place. In this thread, we’ll shed light on various uses of life insurance policies.

Before we move on to the uses of life insurance policies in the UAE, let us take a quick look at what life insurance policies are in reality?

Decoding Life Insurance Policies

In simple terms, a life insurance policy may be defined as an agreement between two parties i.e. the insurance provider and the insurance buyer. The insured pays a fee known as premium against which the insurance provider provides a death benefit in the form of sum assured to the beneficiary of the policy.

Life insurance plans are mainly classified into two categories:

Term Insurance Policies

Term insurance policies are one of the most simple and flexible forms of insurance products available in the insurance market. These plans offer coverage for a fixed period known as the term that typically varies from 5 years to 30 years and can be chosen by the policyholder. If the insured passes away within the policy period the nominee of the plan will be entitled to receive the sum assured as a death benefit. However, if the policyholder surpasses the policy period then there will be no payout since these plans have no maturity benefit associated with them.

Whole of Life Insurance Policies

Whole of life insurance policies also known as universal life insurance plans are an effective tool that allows buyers to pass their wealth to their beneficiaries efficiently without any hassle. These plans provide coverage for the entire life of the policyholder. A major difference amongst term insurance plans and the whole of life insurance policies is that these plans are much expensive and have a cash value associated with them which allows the buyer to build a corpus along with providing financial security.

Uses of Life Insurance Policies

As mentioned earlier there are numerous uses of life insurance plans, the main uses and objectives of life insurance have been mentioned below:

Provides Financial Security to your Loved Ones

One of the most basic uses of buying a life insurance policy is to provide a blanket of financial cushioning to your loved ones and family during phases of financial instability when you are not around to look after them. If you any outstanding debt a life insurance plan in place ensures that your family members are secured even if any stroke of uncertainty hits. The death benefit obtained from the life insurance plan allows the nominees and family members to make ends meet and pay for day to day needs.

Leave a Legacy

All of us work hard during the economically productive years of our lives in order to make sure that we build a corpus for our kids and loved ones. A life insurance policy is a perfect tool to build and leave a legacy behind you for your kids. After you are not around your kids will have financial backing behind themselves to ensure that they don’t struggle at any stage of life.

Alternate Source of Income

Life insurance policies provide the opportunity of creating a source of alternate income that may be used during the economically unproductive years of life i.e. retirement years.  As we walk upon the trail of life we earn and pay for various major expenses like buying a house, a car, a child’s education, marriage, etc. Very often people are not left with enough savings to fund their retired life this is where life insurance plans help the buyer.

Coverage against Illnesses

Problems in life always arrive uniformed and it is always a wise decision to be prepared. Medical illnesses like cancer, COPD, organ failures, strokes, are becoming increasingly common amongst more and more due to the modern-day lifestyle habits and stress. Life insurance plans come with auxiliary add-on riders that enhance the protection quotient of these plans and make them even more potent. In case the policyholder is diagnosed with any critical illness or terminal illness by using auxiliary riders one can receive coverage against these ailments.

Protect your Assets and Business

We work and dedicate almost our entire lives to building businesses and assets. As a business owner, it is one of the primary responsibilities to protect our business. In case one of your business partners becomes ill or passes away there is a huge probability that your business will be affected financially. Life insurance policies allow the insured to maintain continuity and operations of their business even if one of the business partners is terminally ill or passes away since the plan manages and covers the financial depletion of the business in such an event. Term insurance, as well as whole of life insurance policies both, are useful in protecting businesses from uncertainties.

In a Nutshell

Life insurance is an absolute must to protect your loved ones from strokes of uncertainties and protecting your financial assets and businesses. Furthermore, these plans not only provide financial coverage but also provide the most vital component of life peace of mind.

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