by Swati Sharma
Published Sun, Dec 17th 2017, 12:00 | Finance
A coin has two sides similarly every insurance plan or policy also has a few advantages and disadvantages, which in turn can help you make a better decision while buying any policy. Firstly let us have a look at the advantages of life insurance:
1. Life cover: Many people confuse life insurance to be an investment but the truth is it is an expense for which you have to regularly pay a fixed amount, though with future benefits or can be used for investment in future. The main purpose of life insurance is to provide financial aid to the beneficiary or family of the insured after his or her unforeseen death. Therefore, in this way life insurance provides life cover to the family, if you are the only bread earner in the house.
2. Government Regulation: The government heavily regulates the insurance sector making sure that your insurance company has enough assets to cover your liability. This means that you have the peace of mind that in case of your death the money will be given out by the life insurance company and it does not go bankrupt. Governments make sure that insurance companies don’t fail like banks. Even if they do their liabilities, are taken over by the government.
3. Flexibility: another benefit of life insurance is that it provides flexibility i.e. you can take life insurance for 5,10,15 ,20 years depending on your age. It will cover you till the time you have enough amount to support your family after your death.
4. Tax benefit: Another major advantage of life insurance is that it also provides tax benefits that is the premium you pay on an insurance policy is eligible for a maximum tax benefit of Rs 1.5 lakh under Section 80C, and for tax-free proceeds on death/maturity under Section 10 (D) of the Income Tax Act, 1961.
5. Cheap prices: Life insurance is now available at extremely affordable prices due high competition in the market and also due to the dynamic nature or demands of people.
Now let’s have a look at disadvantages of life insurance.
1. Annoying and perplexing: The process of insurance buying is very complex and various questions come into light while buying any policy such as- Is the life insurance agent trustworthy? etc.
2. Low cash surrender values: Cash surrender values are usually less than the premiums paid in the first several policy years and sometimes a policy owner may not recover the premiums paid if the policy is surrendered.
3. Ignorance: Policyholders sometimes ignore payment of some current expenditure to pay policy premiums. Moreover, life insurance premium is typically purchased for the benefit of others and usually only indirectly for the insured person.
4. Confusing: Understanding life insurance is very complex and tricky due to which people face a lot of problem and sometimes forget about various benefits which they can avail through life insurance.
5. Trust: another major drawback is that people lack trust in huge corporations and are skeptical to give money away to companies which could collapse at any moment.