TomorrowMakers

Insurance provides protection to the family in case of death, illness or disability of an earning member. A small amount paid as insurance premium gives you peace of mind because you know that your family’s financial future is secured.

why insurance makes perfect financial sense

As per IRDAI’s annual report released in early 2015, the penetration for the insurance sector in 2013 was just 3.9 percent, against the world average of 6.3 percent. India ranks even below some of the lesser developed nations of the world.

chart-insurance-penetration-in-select-co

This is largely due to the lack of awareness about insurance. There are several myths and misconceptions about this subject, and one of them is that insurance is expensive.

Read more to know why insurance makes perfect financial sense:

  • Risk-Hedging Mechanism

Life is uncertain. It is fraught with risks. Buying insurance to cover these risks is a smart thing to do. Consider this - A family has to incur several monthly expenses like EMIs on loans, maintenance charges, school fees, transportation costs, electricity bills, water charges, outflows towards healthcare, household expenses, and so on. All of these are managed by one or more earning members in the family.

However, what would happen to the family if the income from these earning members were to stop abruptly? What if the earning member is not there anymore? How will the family meet the monthly expenses?

Insurance provides protection to the family in case of death, illness or disability of an earning member. A small amount paid as insurance premium gives you peace of mind because you know that your family’s financial future is secured.

  • Insurance is Affordable

Yes. Insurance is not as expensive as you think it is. There are several types of insurance products available in the market. The cost of insurance varies from product to product. It also depends on your age and health condition. If you are looking for a large sum assured at a low cost, consider buying aterm insurance plan. It is the most cost-effective product available in the market. For example, a 33-year old male can avail a 1 Crore cover for less than Rs. 25 per day.

  • The Time Value of Money

Continuing with the previous example, if you avail a term plan for 20 years, you pay approximately Rs. 182,500 (over 20 years) and in turn receive a cover of Rs. 1,00,00,000 (1 Crore) from the day 1. The premium still seems higher? Now consider the time value of money. What will be the value of Rs. 25 a day, five years from now? Negligible, isn’t it? In fact, as inflation plays its part, paying this premium will get easier over time.

Now, even if you had invested the same amount (Rs. 750 per month) elsewhere and earned a 12 percent p.a. tax-free compounding interest, your corpus would have not grown beyond 7 Lakhs.

  • Tax Benefits

As per the prevailing Income Tax laws in the country, you can avail an exemption (up to Rs. 150,000) for the amount paid as life insurance premium. If you fall under the highest tax bracket, you save Rs. 45,000 of tax each year. Isn’t that great?

  • Riders Multiply the Sum Assured

Along with the base insurance policy, you can invest towards add-ons that cover certain additional risks. Opt for riders such as Accidental Death Benefit, Waiver of Premium or Critical Illness that pay an additional sum assured in case of specific events. This helps you further increase the risk cover at extremely affordable rates.Option to Discontinue

In the unlikely event that you are no longer able to pay the policy premiums, you can either opt for a premium holiday (a break in premium payments) if your policy offers the feature, or even surrender (discontinue) the policy and avail the surrender benefits.

Also see: 8 reasons to buy insurance online

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