Question

In: Finance

Life insurance helps bridge the gap between the financial needs of your dependents and the amount...

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.

True or False?

Solutions

Expert Solution

Yes, the statement is correct.

Life insurance policy helps in securing the future of the dependents if the insured dies. A life insurance contract provides a cover and try to replace the expected earnings of the insured by a lumpsum amount and therefore, bridge the gap between the financial needs of dependent and the money they get from other sources. A life insurance contract provides two types of benefits:

1.      Pays the sum assured if the insured person dies

2.      Pays the sum assured if the insured person survives by maturity

In both the above cases, the insured person becomes unable to earn, and without any proper source of income, it becomes difficult for the dependents to manage their day to day expenses. Life insurance provides a steady source of money in such a situation.


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