3. Probate
Probate applies on the death of an individual and is the way that a state hands out money according to local inheritance law. This can be a lengthy process and it is not uncommon for it sometimes to take years to settle. During this time, how would the beneficiaries provide for themselves if they depended on the deceased for monies? Life insurance can be written in such a way that it completely avoids probate and monies can be directly released to intended beneficiaries. This is not generally possible in the same way with mutual funds where it’s necessary to wait for probate to take its course.
4. Freedom from creditors
In some countries life insurance is seen as an asset which is free from creditors in the event of bankruptcy of an individual. Because the policy is for the benefit of the heirs rather than the customer buying the insurance, it is effectively ring-fenced from any court proceedings. As such it can be paid directly to the heirs without deduction of any debt to outstanding creditors. This is not usually the case with mutual funds.
5. Confidentiality
The way that life insurance companies set up policies is fundamentally different from mutual fund companies. The beneficial owner of the mutual fund driving the investment performance of the policy is the insurance company rather than the individual. This can be very handy in countries where political risk or the risk of kidnap exists, especially if written under trust which would a second layer of confidentiality.
