“If life were predictable it would cease to be life, and be without flavor.” – Eleanor Roosevelt
Life is uncertain and is subject to various kinds of risks ranging from death, destruction, disability, etc., often resulting in financial losses. We might not be born with the expertise to deal with uncertainties, but the best we can do is to be prepared to deal with the risks associated with the uncertainties. Insurance is considered as one of the best ways to reduce such risks as it enables two parties, viz the insurance company (which shall thereafter be known as the Insurer) to enter into a legal agreement with individuals (who shall thereafter be known as the insured).
The concept of insurance is quite primitive. According to the Insurance Regulatory and Development Authority of India (IRDAI), this concept has been mentioned in the writings of Manu, Yagnavalkya, and Kautilya. Their books Manusmrithi, Dharmasastra, and Arthasastra discuss the concept of pooling resources to be re-distributed in times of calamities. This was probably an earlier version of modern-day insurance.
What is Life Insurance?
In legal terms, life insurance is a contract between an insured and an insurer in which, the insurer promises to pay a pre-decided sum of money to the insured on the occurrence of certain unfortunate incidents (death of the insured person in this case) or upon completing a certain period as previously decided by the two parties involved.
Importance of Life Insurance
- Keeps your family financially secure: The most important features of life insurance come from the purpose it serves. Life insurance companies offer compensation to the nominee in the form of the death benefit, thereby enabling the nominee to receive the full sum assured along with the accrued bonus. This keeps the beneficiaries financially secure by providing the funds to meet their day-to-day expenses especially if the insured was the sole bread-winner of your family.
- It is economical and fits most budgets: Life insurance policies allow you to choose a plan according to your preferred coverage amount and the age during the time of application and even lower both the coverage amount and the term length to get premiums that fit into your budget.
- Peace of mind: In case you die after your life insurance policy expired, it may seem like those entire premium payments were for nothing. But insurance policies, allow you to pay for protection if you die before the policy expires and allows you to have peace of mind as you know that your family shall stay protected even after your demise.
- Completes Financial Plan: A lot of people save for their retirement as they believe in staying protected as they age. It is said that the best way to stay financially protected is to start saving yesterday. Your retirement benefits will be of use only till you die and policies with cash can be used to supplement your retirement savings. Life insurance policies are like a financial bridge to your retirement that keeps your loved ones financially secure in case of your untimely demise.
- Cash-value life insurance can help one save: Certain categories of life-insurance contain a cash-value component, which helps you simultaneously save for retirement while enjoying the coverage. For example, Whole Life Insurance, lasting for your entire life is the most popular one within the various categories of Life Insurance. It enables you to split your premiums to pay for a death benefit as well as an interest-bearing savings account. With time, the cash-value component shall gradually take the place of death benefit until we are only left with a cash-value component. This allows the beneficiaries to receive cash, in case you die while the policy is active.
LIFE INSURANCE SAVES THE DAY
The best way to understand the pros and cons of something is to read about/ talk to those who’ve experienced it.
Life Insurance was always a part of Mr. Aditya Sharma’s financial plan. Mr. Sharma, a resident of Kanpur picked up this habit from his father who always advised his children to save for a rainy day. Mr. Aditya recalls how that one act of opting for a life insurance policy left them with enough money (in the form of settlement) when his father passed away leaving behind his wife and 2 school-going kids.
Thus we can say that Life Insurance is not a luxury, but a necessity that helps you lead a peaceful life by keeping your loved ones financially secure. Therefore, it is important to understand the significance of Life-Insurance in our lives and choose the ideal Life Insurance policy available to keep yourself and your dear ones happy and safe throughout.
“I don’t call it “Life Insurance,” I call it “Love Insurance.” We buy it because we want to leave a legacy for those we love.”
― Farshad Asl
Idea & Concept: Rajnikanth, AVP, Hedge School of Applied Economics
Content Development: Aswathi Satish, Niyog Consultancy Services Pvt. Ltd.