Insurance plays a crucial role in managing risk and protecting both individuals and businesses from unexpected financial burdens. Here’s a breakdown of its importance:
1. Financial Protection
- Insurance helps protect individuals and families from significant financial loss by covering expenses related to health issues, accidents, property damage, or unexpected events. For example, health insurance can reduce the financial burden of medical bills, while auto insurance can cover the costs of car accidents.
2. Peace of Mind
- Having insurance gives people peace of mind knowing that they are financially protected against the risks they may face. Whether it’s worrying about an accident, illness, or damage to property, insurance provides a safety net to help people recover from unexpected situations.
3. Health Coverage
- Health insurance is particularly important as it helps to cover the costs of medical care, including hospital stays, prescriptions, doctor visits, and surgeries. Without health insurance, these expenses can be overwhelming, leading to financial hardship.
4. Legal Protection
- Certain types of insurance, such as liability insurance, protect individuals and businesses from lawsuits. For instance, if you’re at fault in a car accident, auto insurance can help cover the costs of damages, legal fees, and medical expenses for other parties involved.
5. Property Protection
- Property insurance (like home or renters’ insurance) helps safeguard your assets from risks like fire, theft, or natural disasters. It ensures that if your home or belongings are damaged or lost, you can recover and rebuild.
6. Business Continuity
- For businesses, insurance is essential for maintaining operations in the face of unexpected events. Business insurance can protect against property damage, liability claims, and disruptions that could otherwise force the business to shut down. It also helps in providing coverage for employees and business owners themselves.
7. Supporting Financial Planning
- Insurance can be a critical part of long-term financial planning. Life insurance, for example, provides financial security to dependents in the event of an untimely death. Similarly, disability insurance helps ensure that individuals continue to have an income if they are unable to work due to illness or injury.
8. Helps with Managing Risk
- Life is full of uncertainties, and insurance allows people and businesses to transfer the financial risk of unexpected events to an insurance company. By paying premiums, individuals and businesses effectively manage their risk, ensuring that they are not financially overwhelmed by an unforeseen event.
9. Encourages Saving
- Some forms of insurance, such as whole life insurance, allow policyholders to accumulate cash value over time. This can be a form of forced savings, which could provide financial benefits in the future or offer a payout in the event of the policyholder’s death.
10. Promotes Economic Stability
- On a larger scale, widespread insurance coverage promotes economic stability. For example, when people are insured, they are less likely to need government assistance after an unexpected event. Similarly, businesses with insurance can contribute to a more stable economy by ensuring continuity and limiting financial strain from accidents or disasters.
11. Accessibility to Loans and Mortgages
- Lenders often require insurance before approving loans or mortgages. For instance, homeowners need to have home insurance to qualify for a mortgage, and car buyers may need auto insurance before they can purchase a car. This protects both the lender and the borrower.
There is no denying that you will have greater peace of mind if you know that you and your loved ones are financially secure from various unforeseen situations. Uncertainties in life could crop up at any moment, such as an unfortunate death or a medical emergency. These situations also include an accident or damage to your vehicle, property, etc.
Bearing the financial impact of these situations can burn a hole into your pocket. You may need to dip into your savings or your family’s hard-earned money. Thus, there is a pressing need of insurance for you and your family for proper coverage and financial support against all risks linked to your life, health and property.
Why is Insurance Important?
The importance of insurance should never be undermined. Insurance acts as a vital shield against unforeseen circumstances. It protects you from unplanned expenses and offers a financial cushion from accidents, illnesses and more. Insurance safeguards the financial interests of your family in your absence. It helps them cover immediate expenses and secures their long-term financial stability.
Below are some reasons why insurance is important:
Provides Financial Stability
The need for insurance cannot be stressed enough. Insurance provides financial stability to families and helps them cover expenses like education, loans, housing, groceries and more. It also ensures financial stability during unexpected situations and helps cover medical expenses, property damage and other similar costs.
Promotes Personal Economic Growth
Insurance acts as a catalyst for personal economic growth by empowering surviving family members to pursue their aspirations in the absence of the policyholder. It provides a safety net to ensure your loved ones have access to essential resources, such as education. Your loved ones can also use the insurance payout to improve their financial situation by investing in businesses, purchasing real estate and more.
Generates Long-Term Wealth
Life insurance plans like endowment, money-back or Unit-Linked Insurance Plans (ULIPs) provide a means to accumulate wealth over time. These policies offer long-term savings and investment opportunities and allow you to secure your financial future. Life insurance can be used for various financial goals like retirement, a child’s higher education and others.
Supports Families in Medical Emergencies
The importance of insurance is particularly pronounced in today’s times. Medical expenses are skyrocketing due to medical inflation and the increasing frequency of various illnesses1. Therefore, having a robust health insurance policy is essential at this time. Health insurance offers financial protection against medical costs. It provides an affordable solution by allowing you to buy policies with a high sum assured without straining your wallet. It also guarantees access to quality healthcare services in your hour of need.
Need for Insurance
Insurance plans are beneficial to anyone looking to protect their family, assets/property and themselves from financial risk/losses:
Insurance plans will help you pay for medical emergencies, hospitalisation, contraction of any illnesses and treatment, and medical care required in the future.
The financial loss to the family due to the unfortunate death of the sole earner can be covered by insurance plans. The family can also repay any debts like home loans or other debts which the person insured may have incurred in his/her lifetime
Insurance plans will help your family maintain their standard of living in case you are not around in the future. This will help them cover the costs of running the household through the insurance lump sum payout. The insurance money will give your family some much-needed breathing space along with coverage for all expenditure in case of death/accident/medical emergency of the policyholder
Insurance plans will help in protecting the future of your child in terms of his/her education. They will make sure that your children are financially secured while pursuing their dreams and ambitions without any compromises, even when you are not around
Many insurance plans come with savings and investment schemes along with regular coverage. These help in building wealth/savings for the future through regular investments. You pay premiums regularly and a portion of the same goes towards life coverage while the other portion goes towards either a savings plan or investment plan, whichever you choose based on your future goals and needs
Insurance helps protect your home in the event of any unforeseen calamity or damage. Your home insurance plan will help you get coverage for damages to your home and pay for the cost of repairs or rebuilding, whichever is needed. If you have coverage for valuables and items inside the house, then you can purchase replacement items with the insurance money
Helps with long-term goals
One of the most important benefits of life insurance is that it enables you to save and grow your money. You can use this amount to meet your long-term goals, like buying a house, starting a venture, saving for your child’s education or wedding, and more
Useful for retirement planning
Life insurance can enable you to stay financially independent even during your retirement. Life insurance plans like annuity plans provide you with a fixed income for life. They are low-risk plans that help you maintain your current lifestyle, meet medical expenses and meet your post-retirement goals
Provides tax benefits
Life insurance helps you plan for the future, while helping you save tax* in the present. The premiums paid under the policy are allowed as tax* deductions of up to ₹ 1.5 lakh per annum subject to conditions under Section 80C of The Income Tax Act, 1961. You can save up to ₹ 46,800/- in taxes* every year. Further, the amounts received under the policy are also exempt* subject to conditions under Section 10(10D) of the Income Tax Act, 1961.
COMP/DOC/Jan/2023/41/1904
Types of Insurance
There are several types of insurance plans available. Some of the commonly preferred ones include the following:
Life insurance :
Life insurance is what you can avail in order to safeguard your family in case of your death during the tenor of the policy.The most basic form of life insurance available to buyers is term insurance. Life insurance helps secure your family financially with a lump sum amount that is paid out in the event of the policy holder’s death within the policy period
Health insurance :
This is purchased for covering medical expenses revolving around various health issues, including hospitalisation, treatments and so on. These insurance plans come in handy in case of medical emergencies; you can also avail of cashless facility across network hospitals of the insurer
Child Plans :
These insurance policies are savings instruments that help in generating lump sum funds whenever children reach a certain age for pursuing higher studies. In these plans, the life assured is that of the child or the recipient of the funds while the parents are the policy owners
Home insurance :
These insurance plans cover any damages to the home on account of accidents, mishaps and natural calamities, among other such events
Auto Insurance :
These are insurance plans for vehicles, including cars and bikes. These offer protection against natural calamities, damages to third parties (people who have incurred losses or been hurt in an accident with the policyholder’s vehicle) and also damages to the vehicle along with mishaps and accidents
Insurance is thus the need of the hour in today’s uncertain times — evaluate your financial situation to choose a plan best suited to your future financial needs
Selecting the Right Insurance Plan
Selecting the right insurance plan is important to maximise its potential. There are a number of factors that can impact the effectiveness of insurance. Below are some of them:
Adequate Coverage
Make sure to analyse your financial needs and select a plan that offers adequate financial coverage. Insufficient coverage may help you save some money at the time of purchase but can lead to compromised financial security in an emergency.
Ability to Pay Premium
The plan’s premium is another essential aspect to consider when selecting the right insurance plan. You may have to pay the premium for years, depending on the policy term. Therefore, aim to strike a balance between adequate coverage, premiums and your monthly expenses. If the premium is too high, you may find it hard to continue paying for the policy in the long run.
Policy Duration
Life insurance policies are long-term plans and often last for many years. When choosing a life insurance policy, it is vital to consider various factors such as your age, the ages of your dependents, outstanding debts and future financial obligations. For example, if you have young children, it is prudent to select a policy that lasts at least until they become financially independent.
Personal Aspects
Every individual’s needs are unique. The kind of coverage you need can depend on your age, gender, occupation and lifestyle. For example, if your job requires you to work in accident-prone areas, it may be advised to buy a high sum assured and a longer policy term to ensure your family’s financial security in your absence.