Five Lessons for Term Insurance Buyers

We are trying very hard to make savings which could come handy as the economy of our nation India continues to steam ahead. An effective financial planning is needed to consider your financial requirements and goals. People will always search for financial instruments which gives them higher returns on the investments.

Term Insurance Policies are a financial instrument that helps you to get the benefits of protection and tax benefit. It helps the family to stay financially secured in case of demise of policyholder therefore, buying term insurance policy is an important instrument when one thinks about taking life insurance. Online Purchase of term plans can be first crucial step toward making a successful financial strategy. It offers you protection against the unknown and can be used as a supplement for retirement income.

Buy for the Right Reason

You need to analyze the need you want to take up term insurance. You need to remember that you are buying term insurance for a specific purpose which offers cover to your family in case of your demise. Tax benefits can’t be the main reason for your decision to purchase Term Insurance. This policy funds for your retirement and education of your child. If you are buying this at young age then it would cost you cheaper.

Deciding the Cover Amount

In order to arrive at the final sum of term insurance, customers need to estimate their annual income, salary, monthly expenses, current and future expenses like school fees, mortgage in order to take care of financial requirements of their family after their demise.

Tenure of Policy

The tenure of your life insurance policy needs to be Retirement Age minus the Current Age, if your current age is 35 years of age and you want to retire the age of 60, policy tenure would be 25 years. There are some plans that offer high life insurance cover till age of 75.

Additional Coverage & Benefits

Add-On’s are riders which you can take along with base cover, some of them are critical illness rider, accidental death benefit rider, waiver of premium. The benefits are available at a higher premium which is added onto the base premium. We need to understand the importance and relevance of these riders so that a proper selection of the riders can be done.

Credentials of Life Insurance Company & It’s Claim Expense

Before you finalize on a life insurance policy, you would need to be completely assured on the credentials of your chosen life insurance company. Factors which one should look at include Assets under Management and Solvency Ratio.

NEED OF INSURANCE

TO PROVIDE SECURITY AND SAFETY

• In general Insurance, the property can be insured against any contingency i.e. fire, earthquake etc.
• The uncertainty due to fire, accident, death, illness, disability in the human life, is compensated financially by general insurance.
• Insurance is the only way to assist and provide adequate cover at the time of sufferings.
• General Insurance provides only protection to the human life and property respectively.

ROLE OF INSURER

Companies conducting insurance business are known as ‘Insurers’. Insurers bring together persons exposed to the same risk by collecting premium from them and pay compensation to those who suffer. The insurer on the lines explained in examples determines premium. Insurer’s role is that of a trustee and has to ensure that nobody takes undue advantage of the arrangement.In a nutshell both underwriting and claim settlement are to be done with great care.

INSURANCE AS A SOCIAL SECURITY TOOL

Various laws, passed by the state for this purpose involve the use of insurance, compulsory or voluntary, as a tool of social security. The Employees State Insurance Act, 1948 provides for the Employees State Insurance Corporation to pay the expenses of sickness, disability, maternity and death and for the maintenance of hospitals, dispensaries, etc. for the benefit of industrial employees and their families, who are insured persons.The scheme operates in certain industrial areas as notified by the government.

Social security is an obligation of the state. Subject has been included in list III of the seventh schedule of the constitution of India as “Social Security and Social Insurance” and “Welfare of labour including, inter alia, liability for workmen’s compensation, etc.” Further, Article 41 of the Directive Principles of State Policy called upon the state to make provision for public assistance in the case of, inter alia, sickness and disablement and in othercases of undeserved want.

Insurers play an important role in the social security schemes sponsored by the government i.e. Solatium Fund, the Personal Accident Social Security Scheme and the Hut Insurance Scheme. The Crop Insurance Scheme (RKBY) is also of social significance.

Rural insurance schemes are designed to provide social security to the rural families. The insurance companies have introduced special insurance schemes, at subsidised rates of premium to cover cattle and other livestock for the beneficiaries of IRDP and various other government sponsored programmes and financial institutions.

Companies of their own also offer on commercial basis insurance covers, which have the objective of social security. Examples: Janata Personal Accident, Jan Arogya, Bhavishya Arogya, Raj Rajeshwari Mahila Kalyan Yojna, etc.

ROLE OF INSURANCE IN ECONOMIC DEVELOPMENT

Insurers play a vital role in mobilizing funds for economic developments of the country. Savings out of insurance fund are utilized in investments for economic growth.

Strength of insurance company lies in that of huge amount collected and pooled together. This so collected amount is called premiums. This is known as pooling of risks.

The very existence of risk that is uncertainty concerning the future is a severe handicap in economic activities. Insurance removes the fear, worry and anxiety associated this future uncertainty and thus encourages free investment of capital in business enterprises and promotes efficient use of existing resources. Thus insurance encourages commercial and industrial development and thereby contributes to a vigorous economy and increased national productivity.

These days organization of industries, commerce and trade depends on insurance, because no bank or financial institutions lend money without having insurance cover as collateral security. Insurers are closely associated with agencies and institutions engaged in fire loss prevention, cargo loss prevention, and Industrial and road safety. Insurers have established Loss Prevention Association of India with intention of creating awareness of need of loss prevention and implementing loss prevention measure in various sectors.

Before acceptance of risk, insurer arranges for the survey and inspection of the property to be insured by a qualified engineer and other experts not only to evaluate but also to suggest improvements to avoid losses, which in turn, not only reduces the rates but also reduces the loss potentials.

Insurance ranks with export trade, shipping and banking services as earner of foreign exchange to the country. Insurers are also operating in foreign countries and earning foreign exchange and represent invisible export.

Cattle and other livestock and also equipment like pump sets are rural business. Various rural schemes provide necessary financial protection against loss or damage to poor farmers and other peoples of weaker section of society.

PURPOSE OF INSURANCE

Every human being has fear in his mind.

• The fear whether he will be able to meet the basic needs of the life i.e. Food, clothing and Housing (Roti, Kapda and Makkan).
• He has fear not only for himself but also for his dependents.
• The source of income to meet his basic needs may be through service or business.
• If he was able to meet his basis needs then he acquires the assets i.e. vehicles, property or jewellery.
• Then he gets additional fear of saving the assets from destruction. ( The assets may be destroyed through accident, fire or earthquake etc. and the income may be cut off due to certainty i.e. old age and death or uncertainty i e. accident, illness or disability.)
• As you know, the old age and death is certain for every human being while the accident, illness, disability and destruction of assets may be random.
• A certain number of accidents will take place but with whom, it is uncertain.

Therefore, to overcome these problems, the Insurance plays a very important role.

The principal source of income of an individual comes from the compensation for work performed by him. If this source of income gets cut off then:

Family will make social and economic adjustments like:

• Wife may take employment at the cost of home making responsibilities
• Children may have to go for work at the cost of education.
• Family members might have to accept charity from relatives, friends etc. at the cost of their independence and self-respect.
• Family standard of living might have to be reduced to a level below the essentials for health and happiness.