What is the point in having Life Insurance?



We can invest money in lots of other things and have nominees who get the money in case of death of the account owner. Then what is the advantage of having life insurance? U pay so much money as premium and everything goes to nowhere if you don’t die… please explain
But the same thing is true for other investment avenues on death of the owner, the nominee(s) get the money… if we invest enough money so that the return is high enough then the dependents get the same thing after death of the owner so why insure why not invest?

What is the point in having Life Insurance?
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14 Replies to “What is the point in having Life Insurance?”

  1. Life insurance is NOT an investment. It is an expense. You would not call automobile insurance an “investment” and neither is life insurance. The only real purpose of life insurance is to replace the income of the primary bread winnner if that person dies prematurely. It is for no other purpose. “Cash value” policies are not real investments, and they are a very bad type of policy to buy if you want insurance. Buy a term policy instead and invest your money elsewhere.


  2. Saves you from being in a garbage bag funeral and saves family members the high cost of a funeral plus getting stuck with your bills.



  3. Life insurance is the only insurance that will be collected on at some point. Also the death benefit is tax free to the beneficiary. You will die it is not a matter of “if” but “when”. Any interest that may be earned on the “cash value” of a life insurance policy is tax deferred. You can also use life insurance to cover a large need ie: mortgage on a home for a specific period of time at a relatively low cost of insurance. Leaving an adequate amount of life insurance for your loved one to survive on is actually like giving them the luxury and time to grieve their loss without having to immediately worry about the financial issue’s.



  4. If you want to make a gain in Life Insurance, you should die. Life insurance is profitable only on premature death of the insured. On death, sum assured will be paid irrespective of the premiums paid up to that date. If you want to live for long, from earning point of view, life insurance is not a good investment.


  5. I pay $650 a year for a 20 year term $1mm policy. I don’t care how good of an investor you are, that is an outstanding deal. There may have been times when life insurance did not make sense, but rates are so low currently that it does, if you have heirs that need the money if you die. Most people with families need more, rather than less, insurance IMHO.


  6. The purpose of life insurance is not to “invest.” It is to protect those dependent on you by replacing your lost income should you die.


  7. LIFE INSURANCE IS NOT AN INVESTMENT. IT IS PROTECTING CHILDREN OR FAMILY MEMBERS AGAINST POVERTY. YES IT IS AN UNREWARDING EXPENSE AT THE FIRST LOOK, SAME AS EXPEDITURE ON DEFENCE OR EDUCATION IN A COUNTRY. HAVE YOU EVER THOUGHT OF DRIVING A VEHICLE WITHOUT BRAKE? THOUGH IT IS RARELY USED DON’T YOU FEEL THAT BRAKE IS THE FIRST THING YOU NEED BEFORE YOU MOVE YOUR VEHICLE? THIS ANOLOGY SIMPLY FITS INSURANCE BECAUSE IT IS NOT THE MEANS OF INVESTMENT BUT TO BE SURE THAT YOUR SUBJECTS OF INTEREST VIZ FAMILY, BUSINESS LIABILITIES, HOME LOANS DO NOT WEIGH HARD ON PEOPLE WHOM YOU LEAVE BEHIND. INSURANCE ALSO TAKES CARE OF THE RISK OF LIVING TOO LONG BY THE PROVISION OF ANNUITY PLANS. IF YOU NEED INSURANCE ONLY TAKE TERM INSURANCE WHICH WILL BE CHEAPER; WISH TO SAVE SOMETHING AS WELL TAKE TRADITIONAL POLICY; WISH TO MULTIPLY MONEY GO FOR ULIPs WHICH HAS INHERENT MARKET RISKS. YOU CAN ALSO GO FOR MUTUAL FUNDS THAT OFFER GROUP INSURANCE COVERAGE. CHOICE IS YOURS. THE LAST POINT IS DO HAVE LIFE INSURANCE


  8. Life Insurance is an asset which you buy on installements. It belongs to your family even if you do not pay installements in case of death during agreed period. If you survive, then you get the asset.


  9. Life Insurance is secured future for the dependents who will be deprived of the income if some eventuality happens and the income ceases immediately.
    It is not death alone but term specified insurance policy assure the return with bonus as survival benefit. it is investment plus security.
    needless that it has to be with death.
    there are a few schemes which will pay an annuity even after retirement
    Investment in any other form may not give that returns for future’s secured day to day requirements.


  10. IF u u dont want to pay a high premium go for a term plan. They secure ur near and dear ones at a very low cost.

    They offer u high insurance value at little cost..example : insured of Rs 20 Lakhs (as we had discussed in previous post) costs u only 5722 Rs per annum, while a money back plan costs u a whopping 67000.

    So y is the term plan so cheap..the flip side is..if u happen to survive the insured period (say 25 yrs), u dont get a dime back.that means an amount of (5722*25) 1,43,000 goes down the drain.

    So shud u go for it?????????? Ofcourse..there is no doubt about it..It is mandatory..the low costs outweigh the negatives.


  11. I can see where you’re coming from, and I partially agree with you. If someone purchases the wrong amount or the wrong type of life insurance, then it can be similar to throwing money down a black hole. Sure, if you die then things will be just fine. But, what happens if you live? Then you end up spending most of your discretionary income on insurance instead of making that money grow.

    However, the advantages far outweigh the disadvantages. Why do most people carry auto insurance (besides the fact the state makes them)? Because there is still the probability that something could happen. Why do most people carry home insurance (besides the fact that the bank requires it)? Because there is still the probability that something could happen. Is there a possibility that you could die premature? Sure there is. And if the primary breadwinner dies, the family will be effected financially. So since there is a risk that one could pass away leaving a family in a bad financial situation, it would be important that we at least try to minimize that exposure as much as possible.

    But you bring up an interesting point, “why not invest money in a product that yields a high return.” You are correct, in the event of death the money still passes to the beneficiary and/or dependents. And you are also correct that there are many investments out there that yield a higher rate of return than a life insurance policy. But… What happens if your “investment plan” doesn’t work? What if you aren’t able to set aside as much money into the investment avenue that you would like for some unforeseeable unpredictable event (i.e. job loss, health expenses, new house, newborn in the house, etc.). Or what happens if your investment avenue doesn’t perform like you think it will? Or what happens if you die before you can invest enough money into a fund that will provide for your family? Let’s assume the best case scenario and you actually do accumulate enough funds in the investment avenue you wrote about, how have you setup the investment so that your heirs don’t pay income or estate taxes?

    What I am getting at here is this: You bring up an excellent Plan A. Your plan is an excellent way in accumulating wealth and I actually agree with your concept of putting the most amount of money possible into a high yielding investment avenue. But, you have no Plan B to address the exposures that occur when you try to accumulate wealth. It is important for people to have a Plan B, in case your first financial plan does not work. By not having a Plan B one assumes:
    1. You live to life expectancy,
    2. You stick with your investment plan throughout your entire life, regardless of what is going on,
    3. You always have the funds available to invest what you need,
    4. Your investment avenue performs or outperforms as you anticipated
    5. The government does not raise taxes and your heirs receive your inheritance 100% tax-free

    I am not saying that you should get as much life insurance as humanly possible and invest every dollar you have in life insurance. Quite the contrary, I actually favor your Plan A. However it is important to have a Plan B to ensure that your original goal of wealth accumulation can be achieved even if Plan A fails. It is possible to have both plans and achieve the end result. The difficulty lies in developing a Plan B that meets your goals and desires and fits in your budget. If you can develop a Plan B (life insurance tailored to what you need) then you can actually enhance your Plan A.

    That’s my take on it.


  12. Your need for life insurance will vary with your age and responsibilities. The amount of insurance you buy should depend on the standard of living you wish to assure your dependents. You should consider the amount of assets and sources of income available to your dependents when you pass away. Social security benefits, available cash and other sources of income and investments may not provide the standard of living you have in mind. Life insurance helps bridge the gap between the financial needs of your dependents and the amount available from other sources, is the amount to be provided by life insurance. Your agent or other financial advisor can help you with these calculations. The Internet, as well as many financial magazines, books and articles are available to help you as well.

    -Michael





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