Saturday, 9 September 2017

What, Why and How of Insurance

Summary: Nothing can be said with absolute certainty for the very next moment. The entire day may get spent smoothly, but that does not guaranty evening to be the same. Any untoward incidence might occur at any time. There was the time when loss of life of a person or his/her belongings had little significance. But, with the passage of time, the need was felt.
Insurance, though does not and cannot provide any mishappenings, but it certainly proves to be a shock absorber if and when it occurs. The term insurance takes care of loss(compensation), but not the sufferings. Nowadays, there are myriads of insurance plans available that help the insured appreciably.

Knowing about insurance will be illogical without knowing about the risk.
Risk is involved in any situation in which some kinds of loss or misfortune is possible. The loss might involve any one of the following:
·       Financial
·       Physical
·       Material
Insurance is designed to protect against risk, because individuals who buy insurance are financially compensated in case of loss. Individuals who are concerned about the potential risks pay insurance companies for protection against specific types of risks, such as flood, medical costs, car accidents, and many others. It is important to note here that purchasing insurance does not remove risks. It merely provides compensation for the loss and spreads the cost of sharing the risk.

Why Insurance is important?
There was the time when even human loss has no any value. People used to get killed as it was so desired by their ruling kings or their chieftains. But, as the time changed and feudal forces subsided, some values start getting attached with the loss of human beings and their belongings.

Given below are some of the reason why insurance is important:

Ø It compensates financial loss: Though insurance cover cannot protect you from the loss, it certainly will prove to be a shock absorber. You financial loss will get compensated by the insurance companies you have opted for. In case of human loss, the compensation is just a fig leaf, but it certainly proves to be of certain help in the form of finance.



Ø It gives you a sense of security: Let me give you an example to understand this heading. Suppose you are earning handsomely, but you are the sole earner of your family. If you have insurance cover, you will get a sense of security for your family, if anything untoward (god forbids) happens to you in the days to come.


Ø Very helpful in medical emergency management: Suppose you have health insurance and suddenly you get diagnosed with an illness that is chronic in nature. Though it is not life threatening, but it necessitates huge expenditure in terms of surgery and the subsequent medical bills. At such a time, insurance is like most trusted friend of yours.




Ø You can insure even your belongings: For most of the people, the term insurance means insurance against death/loss of a human being. But, contrary to what they think, the term insurance not only pertains to the loss of life of human beings, but it also covers their belongings.


Ø Cultivates sense of savings: Every insurance comes with premiums, either monthly, quarterly, half yearly or yearly. So, in order to arrange for its premiums, you will have to cultivate a sense of frugality in your family. More premiums for insurance means more savings.


Ø High Returns: There are some term plans that insure very high returns in case any casualty occurs. This term plan is both good and bad. If the insured loses life, his/her dependant family members will get high return in. But, if no harm is caused to the insured, the premium will not attract any return.


Comparing Types

Term Life Insurance
Whole Life
Universal Life
Type of coverage
covers you for a particular period of time, usually 5, 10, 20 or 30 year periods
Remains in effect your whole life as long as you pay premium on policy
Remains in effect your whole life
Builds up Cash Value
No
Yes
Generally yes, but value tied to cost of insurance and stock market risk.
Cost
Generally least expensive for terms of up to 20 years.
More expensive and not widely available because insurance company takes most of risk.
Generally more expensive over the short term but less expensive over whole life.
Offered by most carriers
Yes, widely offered and rates are competitive.
No.
Yes.
Death Benefit
Fixed death benefit in a specific amount.
Outstanding loans on policy deducted from death benefit, which is set to endow at around 100
Flexible death benefit amounts
Can borrow against policy.
No
Yes
Yes
Policy can lapse
No
No
Yes if cash amounts aren't enough to cover costs of insurance and administration of policy
Administration Expenses
Rolled into premium.
Not easy for consumer to know.
Transparent and available.

Tips to Get the Best Deal in Life Insurance
The cost of life insurance is broadly based on some of the important factors, such as age, health as well as the lifestyle. Given below are some of the tips to get the best deal in life insurance:

Ø Be a Teetotaler: In order to grab the best deal on life insurance, it will be prudent from your part, if you become a teetotaler. Mind, no insurance company will sell you insurance plan without a check-up on your health. And if you are not refraining yourself from drink and/or smoke, chances are you will not be found hale and hearty at the time of check up.



Ø Be Mindful of your Age: It is important to note here that the quantum of the premium of your insurance is decided by your age. So, the early in your life you decide to take an insurance plan, better it will be.


Ø Don’t be in any dangerous jobs: There are jobs that involve greater health hazards or is even life threatening. If you are in any such job, either relinquish it, or do not expect much lucrative insurance cover.



Ø Do your homework: If you fulfill all the criteria mentioned above, you will require good homework. Extensive research on the insurance plan of a particular company and then juxtaposing it from that of others will surely help you get an insurance plan that will be up to your highest expectations.

                                               
                                                                                ---Sushmita JhaSusht




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