Insurance Basics

Even though new age financial planners scoff at the idea that Insurance can be an investment, here's a revealing figure. The total fund manged by LIC is more than Rs 5 lakh crore while the total funds managed by the entire Mutual Fund industry is Rs 2.31 lakh crore only!

Even though Mutual Funds may and should catch up with Insurance, let's take a look at the Insurance concept. Life insurance is universally acknowledged to be an institution which eliminates risk, substituting certainty for uncertainty and comes to the timely aid of the family in the unfortunate event of death of the breadwinner.

Life insurance

Life insurance is concerned with two hazards that stand across the life-path of every person:That of dying prematurely leaving a dependent family to fend for itself and that of living till old age without visible means of support.
In India, Life insurance is popular because Savings through life insurance guarantee full protection against risk of death of the saver. Life insurance encourages 'thrift'. It allows long-term savings since payments can be made effortlessly because of the 'easy instalment' facility built into the scheme. It is also easy to acquire loans on the sole security of any policy that has acquired loan value. Life Insurance is the best way to enjoy tax deductions on income tax and wealth tax.

Need

A policy that has a suitable insurance plan or a combination of different plans can be effectively used to meet certain monetary needs that may arise from time-to-time. Children's education, start-in-life or marriage provision or even periodical needs for cash over a stretch of time can be less stressful with the help of these policies. Alternatively, policy money can be made available at the time of one's retirement from service and used for any specific purpose, such as, purchase of a house or for other investments. Also, loans are granted to policyholders for house building or for purchase of flats
With the insurance industry showing robust growth, it's time to become more aware of your insurance needs. And which is actually evaluating your human life value and then deciding your insurance.

Steps to Insurance?

Life insurance is a potent tool that not only offers the ability to plan for unforseen events that can affect the family's financial situation adversely, but is also looked up to as an important tax saving cum investment tool. (Source: The Money Times.com)
Though the importance of buying an insurance cover is well known, one needs to do a certain amount of spade work before purchasing a policy, to ensure the best possible coverage at the right price.
Here are some helpful tips to get you started:
Explore
As premiums vary widely from company to company and cover to cover, it’s important to look around. One can try internet sites to get instant quotes.
Plot your value
The key to purchasing the right amount of life insurance is to have just enough coverage to meet your needs. If you have more life insurance than you need, you'll be paying unnecessarily for higher premiums. On the other hand, it's important not to have too little coverage, resulting in you being underinsured.
Health matters the most
Healthy people get better rates on life insurance. Higher premiums are quoted for anything that poses a risk for longer life expectancy (smoking, on regular medication, etc).
Sooner the better
As premium rise with increasing age, the younger you are when you purchase life insurance, the lower premiums you will be required to pay.
Review your cover periodically
Any life change indicates the need for an overall review of the financial plans. Make sure you have enough cover for all important events of life.
Check out for no-commission deals
One of the reasons for higher premiums is that most life insurance policies pay commissions to the agent/broker. However, you may be able to purchase a no-load policy through an insurer that sells no-load policies directly to consumers.
Focus on annual installments
You may not realize it, but you may be paying more for your life insurance if you pay your premium in monthly installments. Many insurance companies charge extra fees if you make monthly premium payments instead of paying the annual premium.
Ensure to be adequately insured
Many employers offer their employees group life insurance. But this amount of coverage is usually not enough to adequately meet the life insurance needs. Also, as group life insurance policies are not portable, you’ll be left uninsured when you leave the job.
Never conceal facts
Though, age and negative health related conditions attract higher premium, don’t think about lying on the insurance application. If your insurance company gets the knowledge of concealed facts they can terminate the cover.
Buying more is sometimes cheaper
As the amount of sum assured goes up, the premium amount also rises, but at a decreasing pace. If the numbers work out, you may be able to pay a lower premium while increasing your coverage.