The advantage of life insurance over other types of savings instrument available in the market are as follows
1) Creates an Estate: Life insurance policy creates an estate. At any point of time the value of any other type of saving is the total accumulation in that account only. If the savings holder unfortunately dies, the amount available to the dependents is the accumulation only. In case of the life insurance the moment a policy is taken an estate in created to the extent of the sum assured under the policy i.e. if the policy owner dies, what becomes payable to the dependents is the sum assured the total value of the state and not the total premiums paid.
2) Encourages thrift: Life insurance encourages thrift i.e., forced and compulsory savings. In case of other types of savings. the moment persons feels the need for money, there is great attraction to which money from the savings accumulation. The purpose for which the savings accounts is opened is seldom fulfilled for that reason. in Life insurance policies there is a built-in discouragement to withdraw. Only surrender value which is a small percent of the premium. paid will be available to the policy owner if he wants be to withdrawn . The policy owner thus is forced to continue payment of premiums and never try to surrender a policy. This will ultimately fulfill the purpose fore which the policy was purchased.
3) Gift to near and dear: Life insurance policies cannot be attached by any court of law or income-tax authorities. A married man can take a policy under married Women�s Property Act for the benefit of his wife and / children separately and create separate estates for their benefits. Once a policy is obtained under his legislation the policy holder will not have any hold or right over it. Life insurance thus can be used as a gift to the near and dear.
4) Protection against liquidation of property: A Life insurance policy can be utilised
as a collateral security for a housing loan. In case of unfortunate death of the policy owner, the amount available under the Life insurance policy is adjusted towards the outstanding loan and interest and the house is released to the beneficiaries without any encumbrance. Without such a facility the family will have to self sell the house in the open market to clear the loan. It will be a distress sale and so would fetch only a fraction of the real market value of the house. Life insurance thus affords protection against forced liquidation of property.
5) Acts as an Emergency fund: If immediate liquid cash is needed a policy of Life insurance can be against to the Life insurance company, a Bank or any other financial institution as security for a loan.
Life insurance thus can acts as an Emergency Fund. banks today grant educational loans to students for higher education. They insist on a Life insurance policy as a collateral security. 6) No stamp duty: Transfer of property contained in a Life insurance policy does not attract any stamp duty like other property. It can be done by an assignment under sec. 38 of Insurance Act 1938, either by an endorsement on the back of the policy document or on a stamp paper. 7) No tax on proceeds of policy: The processed of a Life insurance policy including any bonuses paid are not liable for income tax.
8) Tax Exemption: For gaining income tax exemptions under Sec. 80C of Income tax act, a person, can pay premiums under policies is the on his /her life or an the life is spouses or children, whether major of minor married or unmarried.
(9) Simple claim settlement: Settlement of a claim under Life insurance policies is very simple. In case of a death claim, the nominee receives the policy moneys. Incase of survival of the policy holder till the date of maturity of the policy, the maturity claim is paid to the policy holder himself.
10) Safe method of Investments : Life insurance is a safe and profitable investments. The IRDA constituted by the Govt of India in 1998 keeps a constant watch and vigil over the financial positions of the Life insurance companies. There are strict solvency margins to be maintained by the companies. The IRDA pays special attention to the safety of the moneys paid by the policy holders. thus life insurance provides a safe method for investments especially by the middle class. 11) Effective management of funds: One of the important criteria for investments of funds, apart from safety and liquidity is management of funds. A life insurance company will have the necessary experience and expertise in this field and a policy holder gets the benefits of the same entirely free. Moreover the policy holder will be free of all tensions.
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