Life Insurance for you is a way to protect
your survivors and dependents against financial hardship. It’s a means of
spreading financial risk among a large number of people who pay into a fund or
pool. In this the cost is minimized for those who suffer an unexpected
misfortune. A life insurance contract or policy is a legal agreement
between you and an insurance company that guarantees payment of the face
value of the policy, upon death or on survival whichever is earlier. A valuable feature of life insurance is that
the benefit paid to your beneficiary is almost always tax free.
How
Much Cover is Enough?
How do you figure out how much life insurance
you need? If you want to know how much
insurance cover you should have, the answer is 10 times of your annual income.
If your annual income is ten lakhs rupees then the insurance cover should be of
rupees one crore. The second way to know is you should ask to yourself that how
valuable is your life. For that you should know the current value of future
income. For instance, you should know if
some day you didn’t return to your home after work, how much money your
dependents should need after your departure. It gives you a picture of the
capital your survivors need when you die. It looks at assets that would be
available to them, liabilities they would have to deal with, and continuing
family needs for income.
1.
Annual
Income : Rs 10 Lac
2.
Your
expenditure with taxes : Rs.
2 Lac
3.
Insurance
premium : Rs. 50,000
4.
Total
expenditure(Yours) : Rs.
2.5 Lac (2+3)
5.
How
much your family need
(in your
absence) : Rs. 7.5 Lac (1-4)
6.
For
next 25 years your family
Needs : Rs. 1.4 Crore
(This is an example
for an ideal young fellow 35 years of age earning ten Lac rupees annually.)
IMPORTANCE
OF LIFE INSURANCE.
Life Insurance is of great importance to
individuals, groups, business community and general public.
1. Saving for old
age. After retirement the earning capacity of a person reduces. Life insurance
enables a person to enjoy peace of mind and a sense of security in his/her old
age.
2. Under the Income
Tax Act, premium paid is allowed as a deduction from the total income under
section 80C.
3. Life insurance
encourages people to save money compulsorily.
4. Life insurance
policy can be used as a security to raise loans. It improves the credit
worthiness of business.
5. Life insurance is
important for the society as a whole also. Life insurance enables a person to
provide for education and marriage of children and for construction of house.
It helps a person to make financial base for future.
And the last but not least…
6. Protection against
untimely death Life insurance provides protection to the dependents of the life
insured and the family of the assured in case of his untimely death. The
dependents or family members get a fixed sum of money in case of death of the
assured.
Life insurance for you is a major financial
commitment. Your good friend or relative may be suggesting a lucrative plan how
to be a millionaire. But you should be smart enough to have the deliberation on
each aspect of the plan so that you are not trapped into their ponzy plans. You
must know your needs first. A qualified life insurance agent can help you work
out a more comprehensive financial needs analysis. It's important to review your insurance
needs regularly. As your family or business situation changes, so may your
insurance needs. Beware, too, of future inflation and the way it could erode
your insurance.
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