Life insurance a need of today…..!!! Do you agree with the statement…..??? Yes it is not only the need of today but also for tomorrow to support your family in your absence. What are the important factors to be considered while choosing an insurance policy? It is sum-assured and premium. Sum assured should be opted according to the need and lifestyle of a person. For a given sum assured different companies charge varied premium. You might be thinking what determines the premium of an insurance policy. The premium rate for a life insurance policy is based on three underlying concepts: Mortality Interest and expense. Expense is the amount which company adds to the cost of the policy to cover operating costs of selling insurance, investing the premiums, and paying claims.
The concept of Life insurance is based on sharing the risk of death by a large group of people. The amount at risk must be known to predict the cost to each member of the group. Mortality table is a tool which helps to determine the average life expectancy for each age group. Insurance companies use mortality tables to create a basic estimate of how much money it will need to pay for death claims each year.
Interest earning is the second important factor used in calculating premium. Normally companies invest your premiums in bonds, stocks, mortgages, real estate, etc., and assume they will earn a certain rate of interest on the investments.
Operating expenses of the company is the third consideration. Salaries, agents’ compensation, rent, legal fees, postage, etc. are comes under such expenses. The amount charged to cover each policy’s share of expenses of operation is called the expense loading. This cost can vary from company to company based on its operations and efficiency.
See Also: Life Insurance Policies
Life Insurance and Need Analysis
Life insurance serves the following needs
This is the third important reason to buy insurance. Generally savings is the amount remaining with a person after he/she meets all their basic expenses and other cash needs. If one has to build wealth, savings need to be channelized into an investment with precise time horizon and goal. But purchasing an insurance policy is neither savings nor investment; it is simply an effort going waste.
Life insurance is the only investment option that offers specific products tailor-made for different life stages. It thus ensures that the benefits offered to the customer reflect the needs of the customer at that particular life stage, and hence guarantees that the financial goals of that life stage are met.
See Also: Term Insurance Plans in India
Mr. C S Sudheer is the founder and CEO of IndianMoney.com – India’s largest Financial Education Company. He started his career with ICICI Prudential Life Insurance and later on worked with Howden India. After his brief stint in Howden India, he moved on and incorporated Suvision Holdings Pvt Ltd which is the sole promoter of IndianMoney.com. He aims to build a nation that is financially literate with investment savvy citizens.
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