Life insurance policies
A life insurance contract may be defined as a contract whereby the insurer, in consideration of premium pay either in lump sum or in periodical installments, undertakes to pay an annuity or a certain sum of money, either on the death of the insured or on the expiry of a certain number of money, either on the death of the insured or on the expiry of a certain number of years.The person who agrees to pay the assured sum is called the insurer.The person whose life is insured is called the assured.The consideration paid to the insurer is called the premium.
ADVANTAGES OF liFE INSURANCE POliCY
Life insurance policy is important for individuals, families as well as business concerns.
To Individuals
- A life policy builds up a fund for the benefit of the assured dependants.It gives financial protection to the dependents in case of death of the assured.
- There are policies for specific purposes, example, Childrens education, daughters marriage, owning a house etc.Thus, funds for future purposes can be created.
- Payment of premium is compulsory.It must be paid regularly and punctually.Thus, life insurance promotes thrift and encourages savings.
- Policyholders can get loans against their policies to meet emergency needs.The life insurance corporation itself gives a loan against the policy to the insured at a lower rate of interest.
- Policyholders future is financially secured.He or she can enjoy economic independence during his or her retirement period.Thus, it provides peace of mind and freedom from worries to the policyholders.
- Life insurance is a good means of increasing savings and preventing extravagance. Therefore, it can act as a check on inflation.If a person locks up his or her current income in life policies, the purchasing power is reduced to that extent.
- Income tax is not payable on life insurance premium.This is an incentive for buying life insurance.
To Business Concerns
- A sole trader can leave sufficient funds to his or her successors so that they can carry on business without any difficulty.
- In the case of a partnership firm, joint life policy on the lives of all partners can be taken. It enables the surviving partners to pay the capital contribution of the deceased partner to his or her successor.
- It helps in capital formation and economic development of the country.
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