Need and Advantages

Need- Life Insurance
A Human being is an income generating asset.
Loss of income
Income can be lost either due to:
 Unexpected/ pre-mature death of the bread winner
 Sickness/ critical illness
 Disability due to accident
All these (excepting death) may or may not happen. Insurance covers 2 basic certainties of Life,
namely the Risk of Dying Too Early, and the Risk of Living Too Long.
Death is certain. But we have learnt that a ‘certain event’ cannot be insured. Good logic.
The answer is, though death is certain, the timing is uncertain. In case of pre-mature death of the bread
winner in the family, the dependents shall be subjected to hardships.
Adequate life insurance cover can provide the buffer against the shock of early death and relieve the
financial stress during the period of adjustment.
Hence, life insurance is necessary to provide financial security to the dependents in case of the bread
winner dying early.
Loss of income after retirement
After retirement, the regular income is likely to be lost or reduced. Also, there is increased potential of
regular and unexpected medical expenses. Children may be living separate, or in other parts of the
world. In such cases, if there is inadequate provision for retirement needs, the person may suffer.

Life insurance is a means of independence in old age or, at least, assistance to that end. In nations
where the proportion of old people to the total population is increasing, this could well be an important
factor.
In the developed nations, the responsibility of supporting the aged has shifted from family to the State.
As the proportion of people dependent upon the State grows, the greater will be the obligation on
successive governments to provide higher old-age pension benefits with a consequent increasing
burden on younger generations. India has a relatively younger population; however the problems are
the same as in advanced nations. Old-age issues are increasing and increasing nuclear families or the
empty nest stage means more and more old people are going to be under financial insecurities.
Living too long in such a situation may be as risky as dying too early.
The Risk of Dying too early, i.e in the accumulation phase of wealth, can be covered by adequate term
insurance cover, for high sum assureds, after an effective need analysis of the client. The sum assured
should be limited to the human life value of the person insured, and not higher. An adequate risk cover
equivalent to the HLV of the person insured, would be the foundation component of the Insurance and
investment portfolio of the client.
Advantages of Life insurance:
Insurance should not be confused with only being a profitable and prudent channel of investment. It is
much more than that. It is a financial security a responsible person bestows on his or her family in the
event of him/her waiting away from the family scene before fulfilling the various responsibilities and
obligations. Life insurance addresses two important contingencies in the life of an individual:
 The financial strain on their family due to unforeseen and premature death.
 The financial strain on an individual as a consequence of retiring from an active working life
and living longer.
Unlike in other forms of savings where only the accumulations are made available, in life insurance
the entire sum assured is made available to the dependants in the event of death irrespective of the
number of premiums paid; the only condition being that the policy should have been kept in the force
by regular payment of premium.
A life insurance policy is accepted as collateral security by banks, financial institutions and housing
finance companies.
A Mortgage Redemption Policy ensures the financial security of both, the borrower and the housing
finance company. The plan covers the outstanding portion of the loan, and the borrower’s liability is
automatically extinguished on death without any hassle to the dependants.
The proceeds of the policy can be protected against the creditors through a valid assignment.
Through the purchase of immediate annuity by paying the purchase price in one lump sum, one can
buy financial security for one’s old age. And the same can be planned from a young age by
contributing to a suitable Deferred Annuity Plan.

Tax benefits are also available on the premiums paid and also on the claims proceeds according to the
tax laws in force from time to time.
Life insurance is called an immediate estate because of the death of the assured, the life insurance
proceeds are available to the legal heirs inspite of the fact that no estate was in existence up to the time
of the death of the assured. The estate itself comes into being as a result of the death of the insured,
which otherwise would not have existed to be passed on to the dependants.