Why Insurance?

Insurance is one of the most important financial topics in today’s complex world. Failure to have sufficient insurance coverage is the quickest and easiest way to accrue mass debt. Nothing will make your business, car, house, family, or self more vulnerable or susceptible to financial strain than a lack of adequate insurance. However, paying too much for insurance can be a financial strain in itself. And paying for insurance that is not needed is just money down the drain.

Many people have a preconceived notion that insurance is just a waste of money, something that is not necessary. This is not true. Almost everyone needs insurance. How do you know? If you own anything that cannot be easily replaced without economic hardship, it should be insured. If your house burned down, what would you do? If you became disabled at work, would there still be food on the table? Or, in the worst case, would your family be provided for if you passed away?

These are tough scenarios to imagine, but they happen every day. It is important to understand the consequences and to be prepared for the worst. Some people tend to think of insurance as a luxury, but this is not true at all. Insurance is simply a way to avoid an impoverished state.

Like many things in life, the decision to purchase insurance or not is based on a system of risk/reward. Unfortunately, consumers often look at the reward and ignore the risk altogether. This can impede the process of making an educated decision. For example, the lottery is a very popular system of risk / reward. In this case, the risk is generally small, but the reward can be great, making it a popular choice. Gambling in casinos is another example. In this case, some people become so fixated on the reward that they forget the risk of losing. Think of insurance as an inverted version of the lottery. The reward (not paying for insurance and therefore saving an immediate expenditure) is miniscule compared to the possible risk (losing everything you own and being in debt for the rest of your life). And sadly, the chances of your number coming up in the insurance game are a lot greater than your chances of winning millions.

Hopefully, you now realize that insurance is a necessary part of today’s world. So let’s move on. There are four questions you should have in mind when you set out to purchase insurance.

• What kinds of insurance do I need?
• How much of each kind do I need?
• Who do I insure from?
• How do I get the best deal?

Life Insurance

Life Insurance is a financial cover for a contingency linked with human life, like death, disability, accident, retirement etc. Human life is subject to risks of death and disability due to natural and accidental causes.

Though human life cannot be valued, a monetary sum could be determined based on the loss of income in future years. Hence, in life insurance, the Sum Assured ( or the amount guaranteed to be paid in the event of a loss) is by way of a ‘benefit’. Life Insurance products provide a definite amount of money in case the life insured dies during the term of the policy or becomes disabled on account of an accident.

Why you should buy Life Insurance?

All of us face the following risks:

• Dying too soon
• Living too long

Why Life Insurance is needed :

• To ensure that your immediate family has some financial support in the event of your demise.
• To finance your children’s education and other needs.
• To have a savings plan for the future so that you have a constant source of income after retirement.
• To ensure that you have extra income when your earnings are reduced due to serious illness or accident.
• To provide for other financial contingencies and life style requirements.

Who needs Life Insurance?

Primarily, anyone who has a family to support and is an income earner needs Life Insurance. In view of the economic value of their contribution to the family, housewives too need life insurance cover. Even children can be considered for life insurance in view of their future income potential being at risk.

How much Life Insurance is needed?

The amount of Life Insurance coverage you need will depend on many factors such as:

• How many dependants you have?
• What kind of lifestyle you want to provide for your family?
• How much you need for your children’s education?
• What your investment needs are?
• What your affordability is?

Type of life Insurance

• Term Insurance:

This type of life insurance policy is a contract between the insured and the life insurance company to pay the persons/s he has given entitlement to receive the money, in the case of his/her death, after a certain period of time. These policies can be taken for 5, 10, 15, 20 or 30 years.

• Endowment Policy:

In an endowment policy, periodic premiums are received by the insured person and a lump sum is received either on the death of the insured or once the policy period expires.

• Money Back Life Insurance Policy:

This policy offers the payment of partial survival benefits (money back), as is determined in the insurance contract, while the insured is still alive. In case the insured dies during the period of the policy, the beneficiary gets the full sum insured without the deduction of the money back amount given so far.

• Group Life Insurance

This is when a group of people have been named under a single life insurance policy. It is popular for an employer or a company to add employees under the same policy. Each member of the group has a certificate as legal evidence of insurance.

• Unit Linked Insurance Plan

ULIPs (Unit Linked Insurance Plan) offer the insured the double benefit of protection from risk and investment opportunities. ULIPs are linked to the market where the insured’s money is invested to help earn additional monetary benefits.