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Why Do You Need Life Insurance?
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I am not a great believer in life insurance. I know you may find this hard to believe but the fact is that I somehow find the whole idea of somebody benefiting from one’s death rather distasteful.
I would rather invest the amount paid as premiums for a life policy, on some other instrument, which would give me higher returns.
Having said that I would also like to add that for the vast majority of people life insurance fulfils an important function – especially when the main breadwinner of the family dies and the dependents are left without any means of financial support.
There are some very compelling reasons why you need to have a life insurance policy. Despite my beliefs, I think that you should take out at least one policy in your lifetime.
What is life insurance and do you need it?
Life insurance is like paying ‘hafta’ money for your protection and your dependents – that is, those who depend on your income. You pay the life insurance company specific sums of money with a view to getting a lumpsum amount at a future date – either to your dependents (in the event of your death) or to you if your insurance policy offers maturity benefits.
The lumpsum you get is a replacement of your income s that your dependents are not completely left penniless, if you are not around. For you the lumpsum provides funds which can be used in your retirement years or maybe even to start a business.
Life insurance plans now come with a whole host of riders and it is generally sold as an investment product. However we ought not to lose sight of the fact that life insurance as an indemnity product foremost and any savings benefit is purely incidental. For actual savings and investments there are other products available that yield higher returns than what an insurance policy will give.
Now we come to the question of why we need an insurance policy and would any other product serve the purpose equally well. If you are single and have no intention to get married and have children then maybe you may not need insurance. But then, you may have aging parents who may be relying on you to support them financially. If you die unexpectedly they could be in trouble, especially since they may not be able to get employment.
So if you have dependents you need insurance. You may have other investments but if they are market related, the value of portfolio may not remain fixed or your dependents may not know what to do with those investments.
The reason why people go in for insurance is because it gives guaranteed returns – you are assured of pre-determined amount whenever any event occurs.
Apart from the death benefits, the other reason why you need an insurance policy in your portfolio is that it gives you a good sum of money at a point in your life when you may not be so productive – as in terms of earning money. If you have the life insurance money to fall back on, it gives you breathing space to slow down and serves to cushion your later years if you need to take it easy.
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