WHY LIFE INSURANCE?

WHY LIFE INSURANCE? 

The risk of death is covered under insurance scheme but not under ordinary savings plans. In
case of death, insurance pays full sum assured, which would be several times larger than the
total of the premiums paid. Under ordinary savings plans, only accumulated amount is
payable. 

It Encourages Compulsory Saving
After taking insurance, if the premium is not paid, the policy lapses. Therefore, the insured is
forced to go on paying premium. In other words it is compulsory. A savings deposit can be
withdrawn very easily. 

Easy Settlement and Protection against Creditors
Once nomination or assignment is made, a claim under life insurance can be settled in a simple
way. Under M.W.P. Act, the policy moneys become a kind of trust, which cannot be taken
away, even by the creditors. 

It helps to Achieve the Purpose of the Life Assured
If a lump sum amount is received in the hands of anybody, it is quite likely that the amount might
be spent unwisely or in a speculative way. 

To overcome this risk, the life assured can provide that the claim amount be given in
instalments. 

Peace of Mind 

The knowledge that insurance exists to meet the financial consequences of certain risks
provides a form of peace of mind. This is important for private individuals when they insure their
car, house, possessions and so on, but it is also vital importance in industry and commerce. 

Loss Control 

Insurance is primarily concerned with the financial consequences of losses, but it would be fair
to say that insurers have more than a passing interest in loss control. It could be argued that
insurers have no real interest in the complete control of loss, because this would inevitably lead
to an end to their business.

Investment of Funds

Insurance companies have at their disposal large amounts of money. This arises from the fact that there is a gap between the receipt of a premium and the payment of a claim. A premium could be paid in January and a claim may not occur until December, if it occurs at all. The insurer has this money and can invest it.

Invisible Earnings

We have already said that insurance allows people and organizations to spread risk among them. In the same way, we can also say that countries spread risk. A great deal of insurance is transacted in the UK in respect of property and liabilities incurred overseas. London is still very much the centre of world insurance and large volumes of premium flow into London every year; these are described as invisible earnings.

Insurance Facilitates Liquidity

If a policyholder is not in a position to pay the premium, he can surrender the policy for a cash sum.

Loan Facility and Tax Relief

The person can also take a loan for a temporary period to tide over the difficulty. Sometimes, a life insurance policy is acceptable as security for a commercial loan. By paying the insurance premium, the insured obtains significant reliefs in Income Tax and Wealth Tax.