INSURANCE! What comes to your mind when you think about insurance? Is it returns and investment? Well all these things are a part of the policy, but what is the actual meaning of ‘insurance’? Insurance covers ‘risk’. We can’t predict the future, so the possibility of an uncertainty happening with our life remains. Insurance was introduced to cover the risk of that uncertainty happening.
Having said the above, people buy insurance thinking it’s like an investment, which is not true. You can profit from an investment, which is not true in the case of Insurance. One cannot profit from insurance. This is the main reason why people end up with the wrong policies and then spread the word that insurance is a waste of money or the insurance agents are cheaters. It’s very important to understand the purpose of financial products before buying them. If you are not sure of the insurance policy, then it is advisable to seek an expert’s or a consultant’s advice.
Insurance, if taken for the right purpose, will suit your needs and work in your favor. For example, a person who wants to secure his family’s future, in case he’s not around tomorrow, the right choice would be a term plan as the situation is purely based on risk cover. Now, what if he doesn’t have much knowledge on the different policies and goes for a ULIP or an endowment, thinking of it as an investment avenue. Here is where people make mistakes. You always have to identify your needs first and then look at the features of the policy that will suit your needs.
Another reason why people buy wrong policies is because someone else has the same policy, maybe their friends, relatives, etc. Every person’s need is different. So obviously the insurance policy which someone else has, won’t be relevant to my needs. So it’s always best to find out your needs and then plan accordingly.
Let us see why do we need insurance:
1. Covers Risk:
Insurance means ‘risk cover’. As I mentioned earlier, we can’t really predict the future. The classic example is the current situation of COVID-19 pandemic which no one could have ever predicted. Of course you can’t put a price on the life lost, but you can put a price on the income that was coming in. The family may not get the whole income but, they can get part of it which can help the family get back on their feet.
2. Secure family’s future:
With the increase in prices and everything, people find it difficult to manage their current lifestyle, even though they are earning. What happens when the earning stops due to an uncertainty or in case of death of the earner?
Again, we can relate it to the current situation where people are facing pay cuts or job loss due to slow economic activity. This is a result of country wide lockdown owing to coronavirus. To avoid such a situation, where it can take a toll on the family financially, insurance is required.
If you have insurance, it brings peace to the other members of the family that they do not need to worry financially.
3. No compromise on future goals:
With insurance, one doesn’t have to compromise on their future goals. Everyone has goals that need to be achieved, it could be family goals, children’s future goals or even personal goals. So if a person has planned accordingly for funds to reach those goals and due to an uncertainty that resulted in death, now the family has no emergency funds.
Thus, they will now have to compromise on their existing savings, which were originally maintained for funding their goals. To avoid such hassles, insurance is required.
4. Child’s education:
Nowadays, even education prices are increasing rapidly. Everyone wants to do their higher education abroad. This puts a lot of pressure on the parents as they want to give their children the best. Education is something that cannot be compromised with. So there are many insurance policies that cater to this need. It secures the child’s education and future.
5. Financially Stable:
Having insurance also brings stability in the family. A person doesn’t have to worry about the finances. They can have peace of mind that they won’t have to arrange for funds to cater to their needs. There are policies that cater to the needs of the family immediately when the insured dies. As mentioned earlier, it all depends on the needs of the person.
6. Better to plan before hand:
Planning is something that everyone must do. It can be financial, investment, goal based, etc. Planning is mostly done to make sure that the goals of a person are achieved. Same way, Insurance planning is a must. You need to know how much money you need to replace in case you’re not around tomorrow. So that your family can live a better life.
7. Saves you the burden of worrying:
After the loss of a loved one, who is the only bread earner in the family, it is of course an emotional loss for the family, but there is also a financial loss. The family has to now worry about how they are going to manage the future expenses. So having insurance, reduces the financial burden of the family.
So these were the 7 reasons why you must have adequate insurance for yourself. It is further suggested that you make sure that along with you all the other earning members of your family are also adequately insured. You can download the Fintoo App to start the process of investing into an insurance policy suitable to your needs.