It indemnifies, that is to say, it replaces a financial loss caused by the death of an individual, and instantly creates an estate that otherwise would take years of earnings and savings to accomplish.
It is a funding device, used to supply monies for business and estate settlement purposes.
And finally, it is an investment, providing an opportunity for saving with tax-deferred capital accumulation, which is especially attractive in today's volatile investment and restrictive tax climate.
Indemnification Mr.
A is a young man with a family.
Good job, good future-but no estate as yet.
Since his children are young, he needs somehow to ensure their security if he should die and leave his family without a source of income.
He figures that $1,000,000 would suffice to at least take care of his family until the youngest child reaches 21.
He buys a life insurance policy in this amount and breathes easy.
He has partially indemnified his family against his loss.
He adds a rider to waive his premium should he become disabled and unable to earn a living to be sure his policy would stay in force, even if he couldn't work.
Ms.
B is the president of Successful Enterprises, Inc.
She has been the prime organizer and motivating force behind the success of her company.
Her death would represent a profound loss to the firm if she were to die at this point in its development.
Nothing could make up for the loss of her personal contribution, that is true.
But life insurance could soften the blow considerably by indemnifying the company for the financial losses.
Mr.
C and his wife have built their dream house.
The mortgage payments are rather high, but he'll have it paid in full by the time he's 52-if he lives that long.
He's afraid that his wife wouldn't be able to keep up the payments if he died prematurely.
So he buys mortgage insurance.
If he dies before the mortgage is paid off, the insurance takes care of it.
Remember, too, that in each of these cases, as well as in most others, the liquidity of life insurance is of great importance.
The typical beneficiaries of insurance-widows, estates, and independent businesses-are usually in great need of ready cash.
In most instances, insurance proceeds are transferred income-tax-free without delay or administration costs.
It is a funding device, used to supply monies for business and estate settlement purposes.
And finally, it is an investment, providing an opportunity for saving with tax-deferred capital accumulation, which is especially attractive in today's volatile investment and restrictive tax climate.
Indemnification Mr.
A is a young man with a family.
Good job, good future-but no estate as yet.
Since his children are young, he needs somehow to ensure their security if he should die and leave his family without a source of income.
He figures that $1,000,000 would suffice to at least take care of his family until the youngest child reaches 21.
He buys a life insurance policy in this amount and breathes easy.
He has partially indemnified his family against his loss.
He adds a rider to waive his premium should he become disabled and unable to earn a living to be sure his policy would stay in force, even if he couldn't work.
Ms.
B is the president of Successful Enterprises, Inc.
She has been the prime organizer and motivating force behind the success of her company.
Her death would represent a profound loss to the firm if she were to die at this point in its development.
Nothing could make up for the loss of her personal contribution, that is true.
But life insurance could soften the blow considerably by indemnifying the company for the financial losses.
Mr.
C and his wife have built their dream house.
The mortgage payments are rather high, but he'll have it paid in full by the time he's 52-if he lives that long.
He's afraid that his wife wouldn't be able to keep up the payments if he died prematurely.
So he buys mortgage insurance.
If he dies before the mortgage is paid off, the insurance takes care of it.
Remember, too, that in each of these cases, as well as in most others, the liquidity of life insurance is of great importance.
The typical beneficiaries of insurance-widows, estates, and independent businesses-are usually in great need of ready cash.
In most instances, insurance proceeds are transferred income-tax-free without delay or administration costs.
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