In today’s world, it is crucial to have financial security in order to live a stress free life. Life insurance policies offer an opportunity for you to protect you and your loved ones from unforeseen circumstances in an affordable way. In this article, we will look at what life insurance is and highlight its benefits.
Life insurance is a contract between an insurance policy holder and an insurance company (insurer), where the policy holder pays an amount of money to the insurer and in exchange, the insurer promises to pay a sum of money upon the demise of an insured person or after a set period. Depending on the terms of the contract, there are other events in life that may trigger payment from the life insurance cover including critical illness, temporary or permanent disability. There are two basic types of life insurance:
- Term life insurance policy
This is a life insurance policy that provides coverage for a certain amount of time. You choose the term when you take out the policy. Common terms are 10, 20 and 30 years. Once the term expires, you can either renew it for another term, convert the policy to permanent coverage, or allow the term insurance policy to terminate. Term insurance policies generally do not have any maturity value, and thus, offer lower rates of premium than permanent life insurance.
- Permanent life insurance policy
It provides coverage that never expires. It lasts for the lifetime of the insured unless the policyholder stops paying the premium or surrenders the policy. It is an ideal choice for those who require extensive life coverage and want their family to be financially protected at all times.
The main difference between a term life insurance policy and a permanent insurance policy are the duration of the policy, the accumulation of cash value and the cost.
Benefits of life insurance:
- Financial security
Life is full of unforeseen circumstances such as death. In such a scenario, the family may face financial burden if the departed was the breadwinner. Life insurance policy steps up as a safety blanket during such eventuality therefore ensuring that the family is protected.
- Long term savings
Life insurance offers long-term investment opportunities. It helps the insured make systematic savings that can be used for several financial goals such as building a new home, saving for your children’s education etc.
- Tax benefits
In the unfortunate even of the insured’s demise, their beneficiaries will receive a lump sum death benefit (i.e. a payout to the beneficiary of a life insurance policy). Life insurance payouts are not considered income for tax purposes therefore beneficiaries do not have to report the money when they file their tax returns.
- Riders
Riders or add-ons are additional benefits that can be attached to an existing policy. Some riders included in life insurance policies are:
- Waiver of premiums – This benefit allows insured to waive premium payments if they become critically ill, seriously injured or physically impaired.
- Accidental death benefit – This rider extends your life insurance benefits to include an additional payout if you die as the result of a covered accident.
- Permanent disability benefit – This entails the insurer paying the insured this rider benefit if he or she suffers total permanent disability as a result of an accident.
A life insurance policy helps to safeguard your financial future as well as that of your family’s. There are different types of life insurance policies to suit the individual needs or requirements of the policy buyer. A key point to note is that your age and health condition affects the cost of your life insurance premium. For more information on life insurance, feel free to call us on +254 703 099 120 or email us on callc@cic.co.ke.
