Life insurance will be useful only after the policyholder’s death

No, life insurance is not only useful after the policyholder’s death. While the primary purpose of life insurance is to provide financial protection to the family or beneficiaries after the policyholder's death, there are various types of life insurance policies that offer living benefits as well. Let's go over this myth and clear up some common misunderstandings.

Myth: Life Insurance Is Useful Only After the Policyholder’s Death

Reality: Life Insurance Can Have Benefits During the Policyholder’s Lifetime

While life insurance is designed to provide financial security to your family in case of your death, certain policies provide living benefits that can help you during your lifetime as well. Here are some examples:

1. Endowment Plans

• Living Benefit: An endowment policy provides both life cover and a savings component. It pays a lump sum amount to the policyholder at the end of the policy term (if the policyholder survives the term) or to the nominee in case of death.
• Example: If you buy an endowment plan with a 20-year term, and you survive the term, you will receive a payout (sum assured + bonuses). This can be used for retirement or as savings for future expenses (e.g., children’s education, purchasing a home).

2. Money-Back Plans

• Living Benefit: Money-back policies are another type that offers periodic payouts during the policy term. These payouts (a portion of the sum assured) are given at regular intervals, such as every 5 or 10 years, while also ensuring life coverage.
• Example: If you buy a 20-year money-back policy, you may receive payments every 5 years, which can be used for specific needs like funding children’s education or repaying loans. The balance sum assured is paid at the end of the policy term or upon death.

3. Unit Linked Insurance Plans (ULIPs)

• Living Benefit: ULIPs combine both insurance and investment. A portion of the premium is invested in market-linked instruments such as stocks, bonds, or mutual funds, and the policyholder can choose the fund options based on their risk tolerance. The policyholder can benefit from the growth of their investments, and they also receive life coverage.
• Example: While the death benefit is paid to your nominee, if you are alive, you can withdraw or redeem the accumulated funds from your ULIP to meet your financial needs, such as funding your child’s education or medical expenses.

4. Critical Illness Riders

• Living Benefit: Many life insurance policies offer critical illness riders or options to add additional coverage for life-threatening conditions (e.g., cancer, heart attack, stroke). These riders provide a lump sum payout in case the policyholder is diagnosed with one of the covered critical illnesses, allowing for medical treatment and financial support.
• Example: If you are diagnosed with cancer and have a critical illness rider on your life insurance policy, you can receive a payout to help cover medical costs, even while you are alive.

5. Loan Against Life Insurance Policy

• Living Benefit: You can also borrow against the cash value of some types of life insurance policies, such as whole life insurance or endowment plans. The amount you can borrow depends on the surrender value of the policy. The loan can be used for various purposes, such as urgent expenses, without the need to surrender the policy.
• Example: If you are facing a cash crunch or need funds for an emergency, you can take a loan against the cash value of your whole life insurance policy, which you can repay later.

Common Life Insurance Myths and Realities

Myth 1: Life Insurance is Only for Death Benefits

• Reality: While life insurance provides death benefits, many policies come with living benefits that can help you during your lifetime. Endowment, money-back, and ULIPs are examples of policies that offer both protection and financial growth.

Myth 2: Life Insurance Is Only for Young People or Families

• Reality: Life insurance is beneficial at any stage of life. Senior citizens can also benefit from life insurance policies, especially for covering medical expenses, funeral costs, or creating a legacy for their heirs. Older individuals may prefer whole life insurance for lifelong coverage.

Myth 3: Life Insurance Premiums Are Always Expensive

• Reality: Term insurance is very affordable and provides substantial life coverage. Even endowment and money-back plans can offer decent premiums based on the sum assured. The earlier you buy, the lower the premium, especially if you are in good health.

Myth 4: You Need a High Income to Afford Life Insurance

• Reality: Life insurance is available for people with various income levels. For individuals with a lower income, term insurance is often the most affordable and offers high coverage. Additionally, premiums can be adjusted based on the sum assured and policy term.

Conclusion:

Life insurance is not just useful after death. It can offer several living benefits like savings, investment growth, critical illness coverage, and even the option to take loans against the policy. While the death benefit is an essential part of life insurance, certain policies provide financial support during the policyholder's lifetime, making life insurance a versatile tool for financial security.

Before purchasing, it’s important to assess your specific needs (family protection, wealth creation, retirement, etc.) to select a policy that aligns with your goals. Life insurance can play a crucial role in both financial protection and financial planning throughout your life.