Before we enter into a discussion about Life insurance, let us understand a more fundamental concept, that of 'Insurance'. What is insurance? Insurance is about assets. An asset is anything of monetary value that is owned by a person. An asset can be income generating such as a Factory, a house given for rent etc., or it can be one from which some value is derived for comfort or convenience such as a car or a house in which one lives. An asset has a life time and during this life time it is exposed to risks. For example, as a car is exposed to the risk of getting damaged in an accident. A house or factory is exposed to the risk of catching fire, or getting damaged in an earthquake or due to lightning. If the risk affects the asset during its life time then it causes loss to the owner. Insurance is about compensating such loss if it occurs. Now coming to Life Insurance, the human life is also an asset because it generates income. During the income generating days it is also exposed to several risks, such as sickness, accident and death. Life insurance is a way of compensating or diminishing the effect of such loss to the people who depend on the income.
Life insurance is purchased for a variety of reasons. Broadly speaking, life insurance is purchased to cover the needs of protection, accumulation and retirement.
The 'Protection need' refers to the need to help minimize the financial impact on our loved ones who depend on our income if god forbid untimely death, disability or critical illness were to occur to us. As we all know, nobody is immune to these. The insurance amount may be used to clear off outstanding loans, to offer financial support until our dependants settle down, to take care of the exorbitant expenses that are needed in the event of a critical illness, to offer financial support in the event we are disabled and not in a position to earn or for the guaranteed fulfillment of a future plan that involves high expenses because our dependants may not be in a position to handle that kind of expenses alone.
The accumulation or savings need refers to the need to plan for future events that involve money be it to buy a car, to build a house, to plan for the education of our children or to plan for their marriages. Discipline is an important part of every successful plan and Life insurance forces thrift.
Retirement planning refers to planning for what is rightly called the 'golden years' of ones life when one would like to withdraw from the hurried, arduous life of the working years to a life of peace and tranquility. But since medical expenses and cost of living expenses and the effect of inflation are to be considered, it makes intelligent sense to plan in advance for those years. Besides, nobody would like to be a burden on ones children or relatives.
Having been introduced to the needs that insurance covers, it is only logical that all people whether they be, males, females, single, married with or without children would all find a benefit from an insurance product. The kind of policy, the term (duration of the plan) and the sum assured (the extent of money that needs to be planned for) would all depend on the person's life stage needs. Our needs are different when we are single, they change when we get married and they undergo further change when we have children. What that means is, as our goals change, we must make changes in our choices of products to accommodate such changes. One important thing to remember is that the earlier we plan the better it is for us since we can distribute the expenses over a longer period and also since the premiums (the installment contributions) are lesser for younger people.
Not everyone needs life insurance, yet
people often buy policies because it makes them
feel secure and more responsible. The number
one reason for purchasing life insurance is to
protect loved ones who depend on our income
because the insurance would replace our lost
earnings if something happened to us.
But there are various types of insurance plans in the market now. Now, you can make an insurance investment that offers valuable protection to your loved ones in the event of an eventuality at the same time taking care of your savings goals. Maybe, if you are single with no dependents, you can probably skip life insurance but it always helps to have a basic plan which gives you a certain maturity value after a point in time with protection benefits during the plan. More importantly as your responsibilities increase, your need for life insurance increases.
Though that seems like the logical thing to do it is not practicable because insurance companies charge you a per-monthly contribution to cover your risk, called premium. Obviously, since the risk in your younger years is less, the premiums in the younger years are less. Further your likely hood of getting insurance depends on your health condition as assessed by the insurance company. So if you are 30 years old today and you think that you'd like to have a 10 year insurance at age 50 to cover the greater risk from age 50 to age 60, the premiums would be very high at that time. Also, there is no guarantee of your insurability at that point in time. So it would be better for you to take a 30 year endowment plan today if you can afford it; added benefit of such plans is that insurance companies offer something called bonuses on a yearly basis, on some of their endowment plans and the longer the duration the more the bonus. So in this case, at age 60 when you retire, you can hope to take a lump sum maturity amount with 30 years of bonuses declared by the insurance company.
Do you want to leave your spouse in the lurch? Probably not! Can the two of you live off the savings that you've accumulated till retirement for the rest of the years? If yes, then you can probably skip life insurance after retirement. One must consider the situation that is most common here, that of one of you having a pension that would disappear at death and if the surviving spouse depends on that pension, you may need life insurance to replace the lost income.
Life insurance is not a plan that offers only death benefits; it is also an excellent tool for savings and investment. It is good to look at the protection benefits of insurance as an added advantage that no other product in the financial plan offers. That way, life insurance in truly unique. Looking at the protection benefits, some people just take their chances and skip life insurance completely. It's true that you are unlikely to die, or fall ill or become disabled during your working years (that's why life insurance is inexpensive for young, healthy people) but remember you're not insuring for the likely occurrence. You buy life insurance for a worst-case scenario that would have a catastrophic effect on your family. It is like having a spare wheel for your vehicle. If you buy the right kind of insurance, you'll be able to provide a lot of financial security without breaking a bank.
In today's world gaining information or getting a good recommendation on the right insurance plan is no more difficult provided you know exactly what to do. Companies such a National Life Insurance are offering insurance products through their team of professionally trained consultants as well through a strategic tie up with Bank Muscat. You can contact our advisors who will do a need analysis and make a recommendation that is appropriate. Finally, if you need life insurance, don't cancel existing policies until your new insurance is in place. You don't want any gaps in your coverage.
There is a wide array of products to choose from in the market, such as term life insurance, endowment policies and money back policies. One way you can get a recommendation on a product specific to your situation is by contacting a leading insurance company such as NLIC and asking them to send an agent to meet you. Incidentally companies such as NLIC also offers special products to bank customers by way of a tie up called Bancassurance where professionally trained Bancassurance advisors do a need analysis to understand your goals and make a recommendation of a product.