What are the things to consider when buying insurance?
Insurance is an agreement, spoken to by an approach, wherein an individual or element gets money related assurance or repayment against misfortunes from an insurance agency.
A recent survey highlighted that 84% of Indians feel life is extremely uncertain. Among many reasons for uncertainty, ‘financial security of family in case something happens to self’ remained the topmost cause, followed by the uncertainty of ‘medical emergency impacting savings’.
The survey highlighted that single-income families are increasingly worried about critical illness, owing to their dependence on single earning member.
Have you ever thought about what concerns you the most? With increasing uncertainties that defy our security daily, the greatest gift to give one’s family is a lifetime of financial security.
Insurance is one financial solution that can hedge financial uncertainties by providing protection in the form of income replacement, wealth creation and tax savings to mitigate risks. Term insurance specifically is an important investment tool for anyone with assets and beneficiaries.
It not only helps clear debt but also provides funds for your family’s future financial needs like children’s education, marriage, etc.
In case you already have term insurance, here is a question for you- Have you focused on the 3Ds of your Term plan? Do you know what 3Ds are and why they are important?
Let us have a look at the 3 Ds: Death, Disease and Disability of your Term Insurance.
The untimely death of a breadwinner, besides being an emotional crisis, poses huge threat to the financial security of a family. Term insurance is the answer to this uncertainty. Most people consider term insurance to be an expenditure, rather than an investment. What they fail to comprehend are the intrinsic benefits such plans have in securing your family and providing peace of mind.
It is a must if you are an earning member of the family and have dependents. With affordable premium rates, the primary benefit of term insurance is the financial assistance the nominee receives on the death of the policyholder. A lump sum is paid to the nominee if death occurs within the policy tenure.
Besides the death benefit, you can avail tax benefits on the premiums paid and tax-free payment to the beneficiary.
Owing to unhealthy and stressful lifestyles, the burden of chronic diseases is rapidly mounting worldwide. It is likely that the cost of treatment can leave your rainy-day savings dry. Thus, those who intend to purchase term insurance must opt for critical illness benefit rider which offers cash pay-outs to policyholders in case they are diagnosed with acute diseases like cancer, heart attack or multiple organ failure. Such plans are fixed benefit plans offering lump sum pay-out.
Purchasing this rider will not only act as your income replacement but will also provide aid in managing household expenditures like education, money spent on hospital visits, house rent, etc. For example, you buy term insurance for a sum assured of Rs 1 crore and additional critical illness benefit for Rs 25 lakh.
Unfortunately, after 5 to 10 years if you are diagnosed with any major critical illness that immobilize you from earning, the insurance provider will pay Rs 25 lakh lump sum on diagnosis of the mentioned ailment.
In case of loss of life during the policy tenure, dependents will additionally get the assured sum of Rs 1 crore.
Most perceive term insurance as an exceptional shield against the possibility of losing a source of income due to death, but very few consider protecting their income in the occurrence of disability attributed to critical injury, which is more probable than death itself.
To relax the possibility of being left without an income, you can avail special riders as part of your term insurance plan in the event of a disability.
In such a case where the person is not able to get back to normal life due to any permanent or temporary disability, the insurance company pays the sum assured to the insured person to compensate the loss of income.
In some cases, certain term insurance plans also waive off the future premiums if the insured is permanently disabled. In the case of total disability, the insured gets the full sum assured, while in case of partial disability, the insured only gets a partial sum assured. The conditions and pay-out plans may differ for each insurance company.
It is prudent to evaluate the risk of the 3Ds while purchasing a term plan. In today’s time, it only makes sense to risk proof yourself financially from every eventuality.
Therefore, a critical illness and accident riders are life insurance solutions that further strengthen a Term plan. It is time for you to reflect and see if your term plan has the 3D shield.
What is Insurance – Wiki:
Insurance is a means of protection from financial loss. It is a form of risk management, primarily used to hedge against the risk of a contingent or uncertain loss.
An entity which provides insurance is known as an insurer, insurance company, insurance carrier or underwriter. A person or entity who buys insurance is known as an insured or as a policyholder. The insurance transaction involves the insured assuming a guaranteed and known relatively small loss in the form of payment to the insurer in exchange for the insurer’s promise to compensate the insured in the event of a covered loss.
The loss may or may not be financial, but it must be reducible to financial terms, and usually involves something in which the insured has an insurable interest established by ownership, possession, or pre-existing relationship.
The insured receives a contract, called the insurance policy, which details the conditions and circumstances under which the insurer will compensate the insured. The amount of money charged by the insurer to the Policyholder for the coverage set forth in the insurance policy is called the premium.
If the insured experiences a loss which is potentially covered by the insurance policy, the insured submits a claim to the insurer for processing by a claims adjuster. The insurer may hedge its own risk by taking out reinsurance, whereby another insurance company agrees to carry some of the risk, especially if the primary insurer deems the risk too large for it to carry.
Early Methods of Insurance:
Methods for transferring or distributing risk were practiced by Chinese and Babylonian traders as long ago as the 3rd and 2nd millennia BC, respectively. Chinese merchants travelling treacherous river rapids would redistribute their wares across many vessels to limit the loss due to any single vessel’s capsizing.
The Babylonians developed a system which was recorded in the famous Code of Hammurabi, c. 1750 BC, and practiced by early Mediterranean sailing merchants. If a merchant received a loan to fund his shipment, he would pay the lender an additional sum in exchange for the lender’s guarantee to cancel the loan should the shipment be stolen, or lost at sea.
Circa 800 BC, the inhabitants of Rhodes created the ‘general average’. This allowed groups of merchants to pay to insure their goods being shipped together. The collected premiums would be used to reimburse any merchant whose goods were jettisoned during transport, whether due to storm or sinkage.
Separate insurance contracts (i.e., insurance policies not bundled with loans or other kinds of contracts) were invented in Genoa in the 14th century, as were insurance pools backed by pledges of landed estates. The first known insurance contract dates from Genoa in 1347, and in the next century maritime insurance developed widely and premiums were intuitively varied with risks. These new insurance contracts allowed insurance to be separated from investment, a separation of roles that first proved useful in marine insurance.
Modern Methods of Insurance:
Insurance became far more sophisticated in Enlightenment era Europe, and specialized varieties developed.
Lloyd’s Coffee House was the first organized market for marine insurance.
Property insurance as we know it today can be traced to the Great Fire of London, which in 1666 devoured more than 13,000 houses.
The devastating effects of the fire converted the development of insurance “from a matter of convenience into one of urgency, a change of opinion reflected in Sir Christopher Wren’s inclusion of a site for ‘the Insurance Office’ in his new plan for London in 1667.”
A number of attempted fire insurance schemes came to nothing, but in 1681, economist Nicholas Barbon and eleven associates established the first fire insurance company, the “Insurance Office for Houses,” at the back of the Royal Exchange to insure brick and frame homes. Initially, 5,000 homes were insured by his Insurance Office.
At the same time, the first insurance schemes for the underwriting of business ventures became available. By the end of the seventeenth century, London’s growing importance as a center for trade was increasing demand for marine insurance.
In the late 1680s, Edward Lloyd opened a coffee house, which became the meeting place for parties in the shipping industry wishing to insure cargoes and ships, and those willing to underwrite such ventures. These informal beginnings led to the establishment of the insurance market Lloyd’s of London and several related shipping and insurance businesses.
The first life insurance policies were taken out in the early 18th century. The first company to offer life insurance was the Amicable Society for a Perpetual Assurance Office, founded in London in 1706 by William Talbot and Sir Thomas Allen. Edward Rowe Mores established the Society for Equitable Assurances on Lives and Survivorship in 1762.
It was the world’s first mutual insurer and it pioneered age based premiums based on mortality rate laying “the framework for scientific insurance practice and development” and “the basis of modern life assurance upon which all life assurance schemes were subsequently based.”
In the late 19th century “accident insurance” began to become available. The first company to offer accident insurance was the Railway Passengers Assurance Company, formed in 1848 in England to insure against the rising number of fatalities on the nascent railway system.
By the late 19th century governments began to initiate national insurance programs against sickness and old age. Germany built on a tradition of welfare programs in Prussia and Saxony that began as early as in the 1840s. In the 1880s Chancellor Otto von Bismarck introduced old age pensions, accident insurance and medical care that formed the basis for Germany’s welfare state.
In Britain more extensive legislation was introduced by the Liberal government in the 1911 National Insurance Act. This gave the British working classes the first contributory system of insurance against illness and unemployment.
This system was greatly expanded after the Second World War under the influence of the Beveridge Report, to form the first modern welfare state.