Life Insurance Policies: A boon or a bane?
In today’s complicated and competitive world, the goal is always to minimise, if not totally eliminate collateral damage when losses occur. This doesn’t only happen and is not only applicable in business but in people’s personal lives as well. This is especially true when people purchase life insurance, or life assurance, policies either for themselves or for someone they love.
Life insurance is basically a contract between two parties whereby one, the insurer, commits to pay a beneficiary, a certain sum of money upon the demise of the insured. The insurer in a life insurance contract is usually a company engaged in the business of assuming risks, e.g. insurance companies and investment companies. The policy holder/owner is the other party in this particular agreement. Such person commits to pay the insurer, a specified amount of money at certain intervals or in a single lump sum, called the insurance premium. The beneficiary of a life insurance policy is the recipient of the sum of money to be paid by the insurer and may be other persons not party to the life insurance contract, or the policy owners themselves. The insured may be another person or the policy owners themselves.
Generally, there are two types of life insurance contracts according to purpose. Temporary policies, otherwise known as term insurance, provide coverage for specific number of years for a corresponding premium or a periodic installment or one-time lump sum payment. If the insured’s death occurs within the term of the policy, the beneficiaries receive a payout; if the insured outlives the life insurance policy, the beneficiaries don’t get anything. Permanent life insurance policies however, are more than a little different. Permanent policies remain in effect until they mature (there is a payout) or until they expire (policy holders fail to pay premiums). This type of life insurance policy involves the accumulation of a cash value that the owner or policy holder can access through withdrawals or borrowings, or otherwise surrendering the policy and receiving the corresponding surrender value. Interestingly, from an investment standpoint, a life insurance policy may also be used as collateral in a bank loan as well.
Whilst all these may be good, sometimes, the original intent or purpose of such financial plans is circumvented by some to avail of the policy payout at the expense of others. Movie plots or stories revolving around murders for life insurance payouts aren’t entirely baseless. You may recall at the opening section of this article, it was indicated that the policy holder can be the beneficiary of the life insurance policy at the same time. Although there are legal constraints as to who can take out a life insurance policy for whom, it does not eliminate the risks entirely as in the case of spouses being insured and subsequently murdered by their spouse or insurance money.
That being said, we go back to the original question raised here. Is life insurance a boon or a bane?
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