What is Life Insurance?

* Insurance is a contract for payment of a sum of money to the person assured (or failing him/her to the person entitled to receive the same) on the happening of the event insured against.

Life Insurance

* Life Insurance is universally acknowledged to be an institution which eliminates “Risk” , substituting certainty and comes to the timely aid of the family in the unfortunate event of the death of the breadwinner.

* By and large, Life Insurance is Civilization's partial solution to financial uncertainties caused by untimely death.

What is Insurance ?

* Insurance is a contract between two parties whereby one party called insurer undertakes in exchange for a fixed sum called premiums, to pay the other party called insured a fixed amount of money on the happening of a certain event.
* Insurance is a protection against financial loss arising on the happening of an unexpected event. Insurance companies collect premiums to provide for this protection. A loss is paid out of the premiums collected from the insuring public and the Insurance Companies act as trustees to the amount collected.

* Insurance is a system by which the losses suffered by a few are spread over many, exposed to similar risks.
* For Example, in a Life Policy, by paying a premium to the Insurer, the family of the insured person receives a fixed compensation on the death of the insured.
* Similarly, in a car insurance, in the event of the car meeting with an accident, the insured receives the compensation to the extent of damage.

Why should you take Insurance ?

* Insurance is desired to safeguard oneself and one's family against possible losses on account of risks and perils. It provides financial compensation for the losses suffered due to the happening of any unforeseen events.

* By taking life insurance a person can have peace of mind and need not worry about the financial consequences in case of any untimely death.

Why should you take Insurance?

* Certain Insurance contracts are also made compulsory by legislation. For example, Motor Vehicles Act 1988, stipulates that a person driving a vehicle in a public place should hold a valid insurance policy covering " Act" risks. Another example of compulsory insurance pertains to the Environmental Protection Act, wherein a person using or carrying hazardous substances (as defined in the Act) must hold a valid public liability (Act) policy.

PURPOSE OF INSURANCE

* The purpose of insurance is to minimize the loss or damage arising from unforeseen circumstances.
* Insurance is relevant only when there is uncertainty as to the happening of the event.
Insurance envisages sharing of similar risk.

NEED FOR INSURANCE

* Human being is an income generating asset.
* Unexpected death or incapacitation of the bread-winner will result in the loss of future income thus putting the family under financial crisis. Life Insurance is aimed at avoiding this eventuality.

* Insurance does not avoid the peril; it only mitigates the loss due to the peril.

What are the other benefits of taking Insurance?

* Tax Relief: Under Section 88 of Income Tax Act , a portion of premiums paid for life insurance policies are deducted from tax liability. Similarly, exemption is available for Health Insurance Policy premiums.
* Money paid as claim including Bonus under a life policy is exempted from payment of Income Tax. However annuities received under certain pension plans are taxable.

* Encourages Savings : An insurance scheme encourages thrift among individuals. It inculcates the habit of saving compulsorily, unlike other saving instruments, wherein the saved money can be easily withdrawn.
* The beneficiaries to an insurance claim amount are protected from the claims of creditors by affecting a valid assignment.

* For a policy taken under the MWP Act 1874, (Married Women's Property Act), a trust is created for wife and children as beneficiaries.

* Life Policies are accepted as a security for a loan. They can also be surrendered for meeting unexpected emergencies.

* Based on the concept of sharing of losses, the society will benefit as catastrophic losses are spread globally.

What are the other alternatives to Insurance ?

* One alternative to Insurance is to provide self-Insurance i.e. the individual has to create a fund to meet risk exigencies.
* Specified trusts have also tried to provide insurance by a scheme of self-insurance. However, these are not very popular.
The postal department provides Insurance coverage to all working people.
* There are many financial instruments which advocate savings and provide future returns at specific intervals such as the provident fund and pension plans. However, none of these provide for life coverage.