Insurance Basics

Looking for investing your money? In India, experts have predicted that the gold rate will diminish for the next 5-7 years. If gold is not the best option to invest then what else can satisfy people’s diversified needs!

There are many financial products which can be considered to save/invest money. Insurance is one of the best financial products that can be useful in many ways.

Seeing the recent ads of Life Insurance by the Indian government, people have started to consider buying a life insurance policy. But there is a common misconception that the life insurance companies are swindlers.

Are they so? It is better to know before deciding on an issue.

In India there are 24 insurance companies of which 23 are private owned companies. These 24 companies are regulated and monitored by a body called IRDA (Insurance Regulatory and Development Authority of India). IRDA has a set of rules and regulations and all the Insurance companies have to abide by these. LIC, a state owned Insurance organization is the leading player in Indian Insurance industry.

Death is a certain thing but the time of its occurrence is uncertain. In case of any serious loss, insurance company provides the family of the insured with the necessary financial backup.

The person who has taken an insurance policy on his name is the insured. To add, proposer is the person who is paying the premium for the insured. For example John has taken an insurance policy on his son Fred. Fred is not paying premium for this policy but John does. In this case Fred is the insured and John is the proposer.

Sum Assured is the amount for which you have taken an insurance policy. You must have heard people saying that “I have taken Rs.500000 insurance policy for 15 years, Rs.40000 is the amount I have to pay for 15 years”. Here Rs.500000 is the sum assured, 15 years is the policy term and 40000 is the premium amount. Premium can be paid annually, half yearly, quarterly and monthly.

You may ask, for 15 years Rs.600000 is paid, but only Rs.500000 will be given at the end of the 15^th year?

Here comes the role of financial terms like returns and bonuses. You will not only get Rs.500000 but in addition to that you will get returns and bonuses which accumulates to a total amount of Rs.1200000 approximately.

 What happens if the insured dies at the 8^th year?

In this scenario, the insurance company gives the family of the insured Rs.500000 plus the returns and bonuses which had accumulated till the 8^th year.

There are many plans like child plan, endowment plans, term plans, ULIP plans each of which satisfies the diversified needs of the people in different ways.

Check this video from IDBI Federal life insurance co ltd.

Great!!! Isn’t it? But you can see some people still complaining about insurance policies in spite of the numerous benefits.

People who complain about the insurance industry are mostly those who have not understood the functioning of the insurance industry. The premium you pay every year are pooled with the premiums of those who have a similar risk profile like yours. Unfortunately if someone dies from the pool you are listed the money is settled to the family of the dead from the pool of funds.

Some of them take an insurance policy and they fail to keep the policy in force. Either they don’t pay the premiums properly or they withdraw the amount even before the completion of the policy term. If such situation occurs, it not only affects the organization but also those who are present in that particular pool. Without knowing this fact, people unknowingly complain that the company has failed to keep up their promises.

Even in the situation of bankruptcy, IRDA sees to that the money of the policy holders are settled to them and with no doubt customers need not worry about any worse situation since everything is regulated by IRDA.

Insurance is not just about life protection, but it is also a good savings and investment option. Some of the young working professionals buy an Insurance policy for the sake of tax exemptions alone. Insurance policy is also considered as a financial security for applying loans.

If you see for yourself, Insurance in general has 4 major benefits such as life Protection, savings instrument, investment option and tax exemption which are only provided by an Insurance policy. No other instrument like Bank RD, FD, PPF provides all these major benefits