In this post, you`ll learn everything you need to know about the need and importance of Life Insurance.
what is it?
Is it not needed for the poor? the rich?
Is there any class that do not require Insurance?
(And most important of all) how to get it finally if you understand the need and importance of Life insurance.
Let`s dive right in.
1. What is insurance is all about?
The need for it doesn`t come as long as we live; But when it comes to its need, we don’t exist.
2.Definition of Insurance:
An arrangement/contract by which an insurance company undertakes to provide a guarantee of compensation for specified loss, damage, illness, or death in return for the payment of a specified premium is called Insurance. In simple form, it is the compensation paid (by the insurance company) to the nominee when the insurant is no more.Oxford Dictionary
3.Insurance for the Poor:
When it is difficult to run a house; how to pay insurance premium? First of all, it is the immediate question posed by the poor.
When it is difficult for livelihood while you are alive, then think of the situation when you are no more.
4.Insurance for the rich:
I have a lot of money/assets. Then, Why insurance for me? It`s ok if you deposit Rs30 Lakhs-Rs40 Lakhs for the family exclusively to meet the monthly expenses of Rs30,000 to Rs40000. Otherwise, it is easy to pay a few rupees on insurance premia. Not that difficult.
What about the middle class? It is no less trouble for them but their situation is in dilemma. If the earning member is no more, the dependant family members, on the one hand, can not go as daily labor immediately to meet both ends or on the other hand lead a low-cost lifestyle. Further, they hesitate to ask relatives to help in such an emergency, the reason being middle class was bought up in the ideology of independent living. If you want to avoid this contingency/ disaster to your family, you have to just spend a few hundreds of rupees on insurance meanwhile. Life Insurance provides a luxury that gives them the courage to lead their life smoothly in case of an eventuality. Even more, If you are wise enough, it is your responsibility as a family lover to protect them with your life insurance.
Therefore, everyone needs insurance without the distinction of being rich, poor and middle class.
Further to assess the need and importance of Life insurance let`s move to financial goals everyone aspire for…
5. Few Financial Goals of Life:
1.Education of Children
2.Marriage of Son/daughter
3.Construct/Buy a home/own a property
4. Move to own apartment
5. Buy a car/comforts in life
6. Move to a new city.
So as to achieve the financial goals even in the absence of insurant, almost top priority should be given to insurance. Therefore, there should not be any earning person without insurance even for a single day.
Meanwhile, let`s check out the way we handle risk to understand better the need and importance of Life insurance.
How to handle Risk?
1.Avoidance: Choosing to not participate in an activity due to the danger involved, e.g. not getting a driver’s license; Not flying to not take the danger/risk that the airplane may be hijacked.
2.Retention: Saving money just in case of future losses, e.g. depositing Rs5,00,000 in a bank account just in case of a life risk;
3.Transfer: Passing the danger/risk on to an insurance firm, e.g. paying a monthly premium as a fee for an insurance policy and expecting the insurance firm to guard your assets.
Three W`s of Insurance:
6. What is insurance?:
It is a compensation paid to the nominee when insurant is no more. To continue the lifestyle/education of children when insurant is alive.
7. Why insurance?
All folks face the following risks:
(1) Dying too soon. Everyone accepts it that the family will be at stake when no proper arrangement is made for their livelihood if the earning member departs from this world.
(2) Living too long. Ya, wondering that is also a risk? We know very well that if adequate means of livelihood is not planned for retirement, the risk is on the high side that no one cares for us during our life cycle.
8. When insurance?
‘’Right Now,’’ is the answer as we never know when we are going to die. “Insurance’’ is the Best Love Letter you can write to your Family in Your absence.
9. Why Life insurance is needed?
- To ensure that your immediate family has some financial support in the event of your demise, for instance.
- Finance your children’s education and other needs so their bright future is ensured.
- To have a savings plan for the future so that you have a constant source of income after retirement.
- Make sure that you have extra income when your earnings are reduced due to serious illness or accident.
- To provide for other financial contingencies and continued lifestyle requirements, in addition.
By now, you might have decided on the need and importance of Life insurance. If so, the next aspect you will think of is how much Life insurance is needed for you and how to asses it?
10. How much Life Insurance is needed?
- The amount of Life Insurance coverage you need will depend on many factors such as:
- How many dependents you have?
- What kind of lifestyle do you want to provide for your family certainly?
- How much you need for your children’s education subsequently?
- What your investment needs are is the most noteworthy point.
- Finally, What your affordability is?
- Even more, it is the amount your employment or otherwise provides for the next 40 years or in other terms, financial experts say that it should not be less than 10 times the Gross Salary per annum. Hence, that implies you need to add all the future possible expenditure and add some cushion to meet the unexpected.
What Sum Assured means? Sum Assured is the amount that is assured to the nominee in case of any eventuality of the insurer. On the other hand, Sum Assured is approximately the amount of premium paid by the insurer in a given span to cover the risk by Insurance.
11. What is Human Financial Value or Net worth?
It is a fact that no one can replace the key role played by the family earning member as a father, husband or son but at least he can give the assurance for financial security by taking adequate life insurance. As such, to arrive at an adequate amount of life insurance to take, one has to estimate the economic/financial value of that person for the probable years of his earning.
Though calculating this figure appears to be odd, doing so will help you to arrive at the amount of Life insurance you have to go far.
The economic value of a man’s life = Yearly Income earned X Future earning years
For example:- If Annual income = 2.5 lakhs; Current age: 40 years ; Retirement: 60 years
Earnings Period (in years) = 60-40 = 20 years, therefore, in this example
Economic value of man’s life = 2.5 lakhs x 20 = Rs.50 lakhs.
And what else? Calculate how much insurance you need now!
In the event of the death of insurant, a life insurance policy could help to:
- Distribute money to insurant`s beneficiaries.
- Provide for insurant`s children’s college education.
- Pay for the final expenses of a funeral or estate settlement costs.
- Provide an emergency fund to handle an unexpected financial crisis.
- Provide for settlement of insurant`s debts.
12. Why Insurance span should be for long period?
- For 3 reasons Insurance policy should be taken for a long period instead of a short period as one prefers normally. They are:
- (i)Premium will be low for longer periods than shorter periods
- (ii)Number of Bonuses received will be more i.e., Maturity Value will be more
- (iii)The insurance umbrella will be covered up to 60 years when it is needed. So, If the span is for a shorter period, the risk of life through ill-health is less.
13. List of Life Insurance Companies:
|Postal Life Insurance(PLI)|
|Rural Postal Life Insurance(RPLI)|
|Life Insurance Corporation of India(LIC)|
|HDFC Standard Life Insurance Co. Ltd.|
|Max Life Insurance Co. Ltd.|
|ICICI Prudential Life Insurance Co. Ltd.|
|Kotak Mahindra Life Insurance Co. Ltd.|
|Aditya Birla Sun Life Insurance Co. Ltd.|
|TATA AIA Life Insurance Co. Ltd.|
|SBI Life Insurance Co. Ltd.|
|Exide Life Insurance Co. Ltd.|
|Bajaj Allianz Life Insurance Co. Ltd.|
|PNB MetLife India Insurance Co. Ltd.|
|Reliance Nippon Life Insurance Company|
|Aviva Life Insurance Company India Ltd.|
|Sahara India Life Insurance Co. Ltd.|
|Shriram Life Insurance Co. Ltd.|
|Bharti AXA Life Insurance Co. Ltd.|
|Future Generali India Life Insurance Co. Ltd.|
|IDBI Federal Life Insurance Co. Ltd.|
|Canara HSBC Oriental Bank of Commerce Life Insurance Co. Ltd.|
|Aegon Life Insurance Co. Ltd.|
|Pramerica Life Insurance Co. Ltd.|
|Star Union Dai-Ichi Life Insurance Co. Ltd.|
|IndiaFirst Life Insurance Co. Ltd.|
|Edelweiss Tokio Life Insurance Co. Ltd.|
PLI and RPLI are offered by Postal Department a Central Govt run organization. LIC is a public undertaking by Central Government. The rest are mostly private insurance companies. All these Insurance companies come under IRDAI control. Firstly, Insurance Regulatory and Development Authority of India (IRDAI) protects the interest of and secure fair treatment to policyholders; Secondly, it brings about speedy and orderly growth of the insurance industry (including annuity and superannuation payments), for the benefit of the common man, and to provide long term funds for accelerating growth of the economy.
14. What are the Types of Life Insurance Policies:
- Whole Life Insurance: Insurance coverage for whole Life
- Endowment Insurance: serves as Insurance plus savings option
- Convertible Life Insurance: offers whole life insurance with a low premium initially and can be converted as Endowment later on.
- Money-Back Insurance Policies: Insurance coverage with periodical benefits to meet financial goals.
- Child Insurance Policies: Provides Financial future of the child
- Term Life Insurance: Covers full risk in case of death
- Retirement Plans: A corpus for retirement can be planned for a peaceful retirement
- Unit Linked Plans: It is insurance plus insurance with some exposure to sharemarkets.
- Savings and Investment Plans: These are a long-term investment and savings plans with good returns
15.Income Tax Benefits of Life Insurance
Under Section 80(C) of Income Tax Act-1961, valid Life Insurance premia paid is exempt from Taxable income.But, the total amount that can be exempted from the taxable income for section 80C is capped at a maximum of Rs 1,50,000.
16.Myths/Doubts about Insurance?
Question (i): Some say, I am Young, and I do not have risk now out of ill-health. So, I need no Insurance.
Ans: Maybe, but the insurance premium will be more when he plans after 10 years or so as premium increases with age. Moreover, we never know what happens next moment.
Question (ii): I will take insurance for a shorter period for a certain financial goal. Why a long period?
Ans: Discussed already. One can take Loan in case of emergency and clear.
Question (iii): I am not enjoying the money I pay as a premium. Then, why Insurance?
Answer: Because You love your family and cannot imagine the thought of their suffering for good lifestyle/education/marriage/settlement in life when you are no more. Choose the plan according to your suitability but, with insurance.
It is advisable that any person with age more than 18 years need to take life insurance. Why because, the younger he/she is, the less is the premium, long is the term, more is the maturity. Here are many options to choose from when deciding what kind of life insurance you need. Your age and personal situation will dictate what life insurance coverage you need most, as well as how much you can afford. Always review your life insurance options and the death benefit amount and who are the beneficiaries every few years or whenever your family situation changes. My conclusion is Not even a single day you could afford to be without Life Insurance.
Now It’s Your Turn
I hope this post showed you how to choose Life Insurance and the need and importance of Life insurance.
Now I’d like to know what you have to say.
Which part from this post are you ready to try first?
Are you going to start calculating your financial value?
Maybe you want to choose adequate Life Insurance immediately.
Either way, let me know in the comments section below how to do you like the post on need and importance of Life insurance.