The purpose of life insurance can provide protection for oneself or one’s family. Insurance plays an important role, as it offers additional protection against possible damage that will occur.
But the insurance industry also provided enormous impetus for other economic developments. One of the insurances that we must have is life insurance. Before deciding on life insurance, it is important that you understand the purpose of life insurance.
Definition of life insurance
Before knowing the purpose of life insurance, it is important to understand the importance of insurance both in relation to insurance in general and in relation to life insurance itself. In general, insurance can be interpreted as a “guarantee”.
What is meant by insurance is an agreement between two or more parties whereby the insurer binds itself to the insured by receiving the insurance premium. To compensate the insured for any loss, damage, or loss of anticipated profits or any legal liability to third parties suffered by the insured as a result of an event uncertain or for payments based on the death or life of the insured.
While the term of life insurance is an agreement between the insured or the policyholder with the insurer or insurance company in the form of a premium and the insured has the right to receive a sum of money in the event of a specific event or catastrophe.
Insurance services in everyday life are of course in demand when dealing with financial risks arising from death and causing problems for the bereaved or risks to property.
Purpose of life insurance
Everyone must have risks for body and soul, which must be protected from unforeseeable dangers. This concern encourages insurance companies to protect people and businesses.
At least someone has tried to protect themselves or their family from various imminent dangers with insurance, but if an unwanted situation such as death, illness, or even disability occurs, it is calmer if you already have life insurance.
Below is information on the purpose of life insurance, namely:
- The first purpose of life insurance is to make people feel safe.
- The next purpose of life insurance is to become the basis for lending.
- The purpose of life insurance as a means of saving (savings).
- The purpose of life insurance as an emergency fund
Life insurance benefits
Some of the benefits that you can feel when you avail of life insurance services are as follows:
- You can feel calmer because you have prepared some money for your loved ones
- Can prepare needs in the long term
- Can be used as an investment tool and even for savings
- As protection against the risk of death
- Organize and manage finances well.
- This insurance is clearly capable of providing benefits for you and your family. Why? Because you never know what will happen to you in the future.
If later it turns out that you died from an unexpected illness, you have prepared some money for your family and loved ones.
Types of life insurance
In general, life insurance is divided according to the length of protection, the cash value and the applicant. The following is a full explanation.
1. Based on the protection period
Term life insurance
This insurance usually protects you for a certain period of time between 5, 10, and 20 years. This means that you as the insured person must apply for a contract extension when it is due.
Also, you have to pay this contribution depending on the period you want, for example only until the contribution period or only until your child graduates from high school and so on.
For that, you need to adapt your needs more intelligently if you want to use this type of insurance.
Life insurance
This type of insurance will cover you with a life insurance company while your policy is still active. In addition, this insurance also gives you cash. But usually, this cash value is not too high since it is more focused on protecting life.
2. Based on the present value
Pure life insurance
This type is arguably the type of traditional life insurance. This means that this insurance only provides benefits in the form of an insured sum without a cash value. Its function is only to provide soul protection. The premium offered is also very affordable.
You can usually find this insurance quite simply in the type of term. This insurance is perfect for young professionals who want to protect themselves with life insurance.
Endowment life insurance
Endowment insurance has the same characteristics as the term type in that it offers protection for a specific period of time. On the other hand, this insurance is also able to provide a cash-like kind for life.
For this reason, this insurance is called dual-purpose because it has two functions, namely life protection and cash value, with cash value being the primary focus.
You can use the cash value from this double function for child-rearing funds, pension funds, and other funds.
Unit-linked life insurance
This type of insurance is very different from the cash value found in lifetime and endowment insurance. The cash value in this Link Life unit is formed from the development of funds in capital market products.
Under these conditions, the cash value of this insurance will experience dynamic movements in line with developments on the capital market.
Therefore, this insurance is also referred to as a share life insurance, since it is almost the same form of investment as in general.
3. Based on the party submitting the policy application
Individual life insurance
As the name suggests, this insurance is only issued to private customers. The scope of this individual is usually broader than the group type. So, of course, the bounty on offer is much greater.
Group Life Insurance
In general, this type of insurance is used by municipalities, offices, foundations, etc., which tend to be a group or multiple companies.
As already mentioned, the coverage of this insurance is narrower than that of private individuals, although the premiums are of course much cheaper.