There is no denying that you will have greater peace of mind if you know that you and your loved ones are financially secure from various unforeseen situations. Uncertainties in life could crop up at any moment, such as an unfortunate death or a medical emergency. These situations also include an accident or damage to your vehicle, property, etc.
Bearing the financial impact of these situations can burn a hole in your pocket. You may need to dip into your savings or your family’s hard-earned money. Thus, there is a need for insurance for you and your family for proper coverage and financial support against all risks to your life, health, and property.
Need for Insurance
Insurance plans are beneficial to anyone looking to protect their family, assets/property, and themselves from financial risk/losses:
- Insurance plans will help you pay for medical emergencies, hospitalization, contraction of any illnesses and treatment, and medical care required in the future.
- The financial loss to the family due to the unfortunate death of the sole earner can be covered by insurance plans. The family can also repay any debts like home loans or other debts which the person insured may have incurred in his/her lifetime
- Insurance plans will help your family maintain their standard of living in case you are not around in the future. This will help them cover the costs of running the household through the insurance lump sum payout. The insurance money will give your family some much-needed breathing space along with coverage for all expenditures in case of death/accident/medical emergency of the policyholder
- Insurance plans will help in protecting the future of your child in terms of his/her education. They will make sure that your children are financially secure while pursuing their dreams and ambitions without any compromises, even when you are not around
- Many insurance plans come with savings and investment schemes along with regular coverage. These help in building wealth/savings for the future through regular investments. You pay premiums regularly and a portion of the same goes towards life coverage while the other portion goes towards either a savings plan or investment plan, whichever you choose based on your future goals and needs
- Insurance helps protect your home in the event of any unforeseen calamity or damage. Your home insurance plan will help you get coverage for damages to your home and pay for repairs or rebuilding, whichever is needed. If you have coverage for valuables and items inside the house, then you can purchase replacement items with the insurance money
- Helps with long-term goals
One of the most important benefits of life insurance is that it enables you to save and grow your money. You can use this amount to meet your long-term goals, like buying a house, starting a venture, saving for your child’s education or wedding, and more
- Useful for retirement planning
Life insurance can enable you to stay financially independent even during your retirement. Life insurance plans like annuity plans provide you with a fixed income for life. They are low-risk plans that help you maintain your current lifestyle, meet medical expenses, and meet your post-retirement goals
- Provides tax benefits
Life insurance helps you plan for the future while helping you save tax* in the present. The premiums paid under the policy are allowed as tax* deductions of up to ₹ 1.5 lacks per annum subject to conditions under Section 80C of The Income Tax Act, 1961. You can save up to ₹ 46,800/- in taxes* every year. Further, the amounts received under the policy are also exempt* subject to conditions under Section 10(10D) of the Income Tax Act, 1961.
Types of Insurance
There are several types of insurance plans available. Some of the commonly preferred ones include the following:
- Life insurance :
Life insurance is what you can avail of to safeguard your family in case of your death during the tenure or of the policy. The most basic form of life insurance available to buyers is term insurance. Life insurance helps secure your family financially with a lump sum amount that is paid out in the event of the policyholder’s death within the policy period
- Health insurance :
This is purchased for covering medical expenses revolving around various health issues, including hospitalization, and treatments. These insurance plans come in handy in case of medical emergencies; you can also avail of cashless facilities across network hospitals of the insurer
Reasons people buy insurance
Most people buy insurance for four main reasons:
- High value: To protect something they have purchased that has a high value (such as a house, a car, or perhaps jewelry or a painting) and which would be expensive to replace. Often a loan has been taken out to purchase the items
- Catastrophe
To protect their property and possessions against a disaster, such as a fire, flood, cyclone, or another calamity - A specific event: To protect them when they are doing something not covered by their normal insurance policies, such as traveling overseas
- Liability
To provide financial protection if sued – for example, if a visitor should sue you for negligence after injuring themselves on your property
Protecting what’s important
When you take out an insurance policy, you need to do some thinking about what is important to you, and how much you are willing to put aside to protect those things if you were faced with their loss.
Most people are willing to pay an insurance premium to protect things such as their home and its contents, their car, boat, or caravan. Business owners will usually also take out insurance coverage to protect assets and stock and to provide financial help if they face legal issues.
Choosing an insurance policy is a matter of identifying what’s important to you.
Some forms of insurance are compulsory. For instance, state and territory governments require car owners to buy mandatory motor vehicle accident personal injuries insurance when they register their cars to protect any person they might injure while they are driving. Business owners have to pay premiums into their state or territory workers’ compensation scheme for their employees. And property owners taking out a home loan with less than a 20 percent deposit may be required by their lender to buy Lenders Mortgage Insurance.
What can you protect?
You should consider general insurance when the cost of a particular financial risk is much greater than the cost of protecting yourself against that risk.
Risk must be able to be valued in monetary terms for it to be included in an insurance policy. It must also be an uncertain risk, something that we can’t be sure will happen.
You must also have a direct interest in any loss that you insure against. You can’t take out house and contents insurance on the home of your neighbor, for example.
Nearly anything valuable can be insured, but in practice, most insured items share the following characteristics:
- the loss or damage has a reasonable dollar value
- the risk being covered could happen across a large number of people (such as theft, fire, or car accident)
- the premium is cost-effective
IMPORTANCE OF INSURANCE
- Protection for Family:
Life insurance protects the family after the death of the bread-earner. When a person dies at an early age, the family loses its source of income. The family is paid the amount of the policy. This money can be used to create some other source of income. So insurance is beneficial for the family.
- Encourages Savings:
The insurer is required to pay a premium at regular intervals. It encourages people to save money for paying a premium. If the compensation is not paid the policy will be canceled. Insurance helps create the habit of saving money.
- Channel for Investment:
Life insurance not only protects against future risk but is also a good source for investing money. The insured get lump sum money on the maturity of the policy. In case of death, the nominee of the insured gets the money. The case of life insurance is different from marine and fire insurance because in a life insurance policy money must be paid sooner or later. In marine and fire insurance only the loss is compensated.
- Exemption from Income Tax:
The amount paid as a premium on a life insurance policy is allowed as a deduction from income for calculating income tax. The insured can save some income tax.
5. Helps in Capital Formation:
The insurance company can collect huge sums of money as premiums. This amount is invested in various developmental activities of the country. It is a good source of capital formation.
6. Credit Facilities:
The insured can raise a loan on the security of the life insurance policy. The insurance company extends financial help on the security of the policy.
