Why do I need Insurance?
You need insurance for
Family that is financially dependent on you: If you have a family
that is financially dependent on you, then you definitely need to
insure yourself. The most common reason to buy life insurance is it
provide protection to your family incase of any unforeseen events. The
life insurance proceeds can be used to support your family members
with the expenses.
Loans or liabilities: It is very important to insure yourself if you
have taken a loan or mortgaged your assets. It not only provides peace
of mind but also a steady source of income for your family
Compulsory saving-cum-investment: A life insurance policy could be
used as a compulsory saving-cum-investment avenue. Proceeds from the
insurance policy could be used to fund future expenses such as child's higher education or retirement funds or even a well-deserved
holiday.
Partner in a firm or Self-employed: It is highly needed by people who
are partners in a firm or have their own proprietor firms. Life
insurance can be a critical component for specialized business
applications - such as funding a buy-sell agreement. The proceeds of a
life insurance policy could be used to provide cash for the purchase
of a deceased owner's interest in the business or to pay off
business liabilities.
Other than the RBI Bonds, insurance products are the only other
investment products that guarantee yields over a range of time - from
5 years to 25 years. Insurance companies offer single premium
investment products as well as regular investment-cum-insurance
products that guarantee high yields over a period.
Loss
of a life cannot be compensated for and this is the basis of
Life Insurance products. Other products such as medical
insurance would reimburse an individual for an expense
incurred by the respective person in case of medical mishap.
However, the value of life of a person cannot be reimbursed
and hence all Life Insurance products work upon the basis of
paying an amount (also known as sum assured) in an unfortunate
incident of death based upon an initial agreement between the
insurer and the insured person. The amount of premium paid by
the insured depends upon various factors such age, existing
medical ailments, lifestyle of the insured, duration and
amount of insurance. If the amount of insurance requested by
the insured is over a material amount, the insurance provider
may require a medical checkup before entering into an
agreement with the insured.
Amongst
the types of life insurance products available in the
financial market, the most popular options are Term Insurance
and Endowment Policy.
In
Term Insurance policy, the insured person pays a regular
insurance premium for the duration of the insurance policy and
if the insured dies during the tenure of the policy, the lump
sum amount / sum assured is paid to the nominee / legal heir
of the insured. If such an event does not arise with the
policy term, no amount is paid by the insurance company to the
insured.
In
case of Endowment Policy, similar to term insurance, the
insured person pays a regular insurance premium for the
duration of the insurance policy. During this duration, the
insured person is covered if a death event occurs, whereby the
sum assured amount is paid by the insurance company to the
nominee or the legal heir of the insured person. However, if
no such event arises, the insured person is paid the sum
assured after the expiry of the policy tenure. Several flavors
of endowment policies exist where such sum assured is paid
throughout the policy duration (in case of money back
policies), or where the insured pays insurance premiums for a
specific duration only and gets a life cover for an extended
period of time. Other policies invest a portion of insurance
premiums in stock markets and aim to generate higher return
and hence a higher maturity payout (in case of Unit Linked
Insurance Plans). In summary Endowment Policy plans serve dual
purpose of providing insurance and acting as an investment
option in the same time.
In the maze of several types of insurance products available
through scores of insurance companies, BFA assist their
clients to obtain the right product to suit their
requirements.
