The life and property of a person is laden with risks of death and disability.
Insurance is transferring this risk to an insurance company.
Most people mistake insurance as an investment which is not the case. It is a protection against contingencies such as the death of the policy holder or damage of his property. In return for the premium paid, the insurance company promises to cover the losses for the property or life of the insured.
The purpose of the whole process is to ensure the affected family does not face any financial hurdles in case of unexpected occurrences.
Let us take the example of motor insurance. The reason for taking motor insurance is to provide financial protection against damage to your vehicle as a result of an accident or a collision. In case of accidents, insurance companies are expected to provide the amount required to repair the vehicle.
The same is the case with life insurance.
Two Important Reasons for taking Insurance
There are two important reasons why someone needs insurance – Life cover and medical emergency.
The life of insured is covered in insurance. In case any mishap occurs to the insured, the affected family gets a lump sum amount so that they do not face any financial hurdles.
Let us assume the sole breadwinner of a family passes away. If a financial emergency arises at this point, this insurance amount will help the affected family survive the urgent requirements.
The medical requirements of an individual are covered in medical insurance. During a medical emergency, the insurance companies are expected to provide the fund needed for the treatment based on the sum assured.
Most people take insurance as part of tax planning. People jump into it without proper study which results in ending up in policies which are not suitable. One must consider their life risks or the sum assured before taking a policy.
Insurance as said above is a protection against one’s life and property. So assess the life risks and choose a policy based on your requirements.