For economic development, investments are necessary. Investments are made out of savings. A life insurance company is a major instrument for the mobilization of savings of people, particularly from the middle and lower income groups. These savings are channeled into investments for economic growth.
An insurance company’s strength lies in the fact that huge amounts come by way of premiums. Every premium represents a risk that is covered by that premium. In effect, therefore, these vast amounts represent pooling of risks. The funds are collected and held in trust for the benefit of the policyholders. The management of insurance companies is required to keep this aspect in mind and make all its decisions in ways that benefit the community. This applies also to its investments. This is why successful insurance companies would not be found investing in speculative ventures. Their investments benefit the society the society at large.
The system of insurance provides numerous direct and indirect benefits to the individual and his family as well as to industry and commerce and to the community and the nation as a whole. Those who insure, both individuals and corporate, are directly benefited because they are protected from the consequences of the loss that may be caused by the accident or fortuitous event. Insurance, thus, in a sense protects the capital in industry and releases the capital for further expansion and development of business and industry.
The very existence of risk that is, uncertainty concerning the future, is a severe handicap in economic activities. Insurance removes the fear, worry and anxiety associated with this future uncertainty and thus encourages free investment of capital in business enterprises and promotes efficient use of existing resources. Thus insurance encourages commercial and industrial development and there by contributes to a vigorous economy and increased national productivity.
Present day organization of industry, commerce and trade depend entirely on insurance for their operation, banks and financial institutions lend money to industrial and commercial undertakings only on the basis of the collateral security of insurance. No bank or financial institution would advance loans on property unless it is insured against loss or damage by insurable perils.
Insurers are closely associated with several agencies and institutions engaged in fire loss prevention, cargo loss prevention, industrial safety and road safety.
Before acceptance of a risk, insurers arrange survey and inspection of the property to be insured, by qualified engineers and other experts. The object of these surveys is not only to assess the risk for rating purposes but also to suggest and recommend to the insured, various improvements in the risk, which will attract lower rates of premium and what is more important , reduce the loss potential. For example, burglary surveyors make recommendation in regard to security measures such as better locking system, appointment of Watchman, etc. Engineering surveys play a most useful part in accident prevention as valuable technical advice is provided in respect of plant and machinery.
Insurance ranks with export trade, shipping and banking services as earner of foreign exchange to the country. It helps to earn foreign exchange and represent invisible exports.
Showing posts with label insurance. Show all posts
Showing posts with label insurance. Show all posts
Friday, May 23, 2008
Saturday, May 17, 2008
Life Insurance a Basic Need
Life insurance is a contract providing for payment of a sum of money to the person assured or, failing him, to the person entitled to receive the same, on the happening of certain event.
A family is generally dependent for its food, clothing and shelter on the income brought in at regular intervals by the bread winner of the family. So long as the he lives and the income is received steadily, that family is secure; but should death suddenly intervene the family may be left in a very difficult situation and sometimes, in stark poverty.
Uncertainty of death is inherent in human life. It is this uncertainty, that is risk, which gives rise to the necessity for some form of protection against the financial loss arising from death, insurance substitutes this uncertainty by certainty.
Some outstanding advantages of life insurance
1. It is superior to an ordinary savings plans: This is so because unlike other saving plans, it affords full protection against risk of death. In case of death, the full sum assured is made available under a life assurance policy; whereas under other savings schemes the total accumulated savings alone will be available. The latter will be considerably less than the sum assured, if death occurs during early years.
2. Insurance encourages and forces thrift: a savings deposit can be too easily withdrawn. Many may not be able to resist the temptation of using the balance for some less worthy purpose. On the other hand, the payment of life insurance premiums becomes a habit and comes to be viewed wit the same seriousness as the payment of interest on a mortgage. Thus insurance, in effect brings about compulsory savings.
3. Easy settlement and protection against creditors: the life assured can name a person or persons to whom the policy moneys would be payable in the event of his death. The proceeds of a life insurance policy can be protected against. The claims of the creditors of the life assured by effecting a valid assignment of the policy. A married women’s property act policy constitutes a trust in favor of the wife and children and no separate assignment is necessary. The beneficiaries are fully protected from creditors except to the extent of any interest in the policy retained by the assured.
4. Administering the legacy for beneficiaries: It often happens tat a provision which a husband or father has made through insurance is quickly lost through speculative or unwise investment or by unnecessary expenditure on luxuries. These contingencies can be provided against in the case of insurance. The policyholder can arrange that in the in the event of his death the beneficiary should receive, instead of a single sum (a). payment of the net claim amount by equal installments over a specified period of years, or (b).payment of the claim amount by smaller monthly installments over the selected period followed by a lump sum at the end thereof.
5. Ready marketability and suitability for quick borrowings: After an initial period, if the policy holder finds himself unable to continue payment of premiums he can surrender the policy for a cash sum. Alternatively he can tide over a temporary difficulty by taking loan on the sole security of the policy without delay. Further a life insurance policy is sometimes acceptable as security for a commercial loan.
6. Tax relief: for computing income tax (especially in India the Indian income tax act) follows deduction from income tax payable, a certain percentage of a portion of the taxable income of individuals which is diverted to payment of insurance premiums. When this tax relief is taken into account it will be found that the assured is n effect paying a lower premium for his insurance.
A family is generally dependent for its food, clothing and shelter on the income brought in at regular intervals by the bread winner of the family. So long as the he lives and the income is received steadily, that family is secure; but should death suddenly intervene the family may be left in a very difficult situation and sometimes, in stark poverty.
Uncertainty of death is inherent in human life. It is this uncertainty, that is risk, which gives rise to the necessity for some form of protection against the financial loss arising from death, insurance substitutes this uncertainty by certainty.
Some outstanding advantages of life insurance
1. It is superior to an ordinary savings plans: This is so because unlike other saving plans, it affords full protection against risk of death. In case of death, the full sum assured is made available under a life assurance policy; whereas under other savings schemes the total accumulated savings alone will be available. The latter will be considerably less than the sum assured, if death occurs during early years.
2. Insurance encourages and forces thrift: a savings deposit can be too easily withdrawn. Many may not be able to resist the temptation of using the balance for some less worthy purpose. On the other hand, the payment of life insurance premiums becomes a habit and comes to be viewed wit the same seriousness as the payment of interest on a mortgage. Thus insurance, in effect brings about compulsory savings.
3. Easy settlement and protection against creditors: the life assured can name a person or persons to whom the policy moneys would be payable in the event of his death. The proceeds of a life insurance policy can be protected against. The claims of the creditors of the life assured by effecting a valid assignment of the policy. A married women’s property act policy constitutes a trust in favor of the wife and children and no separate assignment is necessary. The beneficiaries are fully protected from creditors except to the extent of any interest in the policy retained by the assured.
4. Administering the legacy for beneficiaries: It often happens tat a provision which a husband or father has made through insurance is quickly lost through speculative or unwise investment or by unnecessary expenditure on luxuries. These contingencies can be provided against in the case of insurance. The policyholder can arrange that in the in the event of his death the beneficiary should receive, instead of a single sum (a). payment of the net claim amount by equal installments over a specified period of years, or (b).payment of the claim amount by smaller monthly installments over the selected period followed by a lump sum at the end thereof.
5. Ready marketability and suitability for quick borrowings: After an initial period, if the policy holder finds himself unable to continue payment of premiums he can surrender the policy for a cash sum. Alternatively he can tide over a temporary difficulty by taking loan on the sole security of the policy without delay. Further a life insurance policy is sometimes acceptable as security for a commercial loan.
6. Tax relief: for computing income tax (especially in India the Indian income tax act) follows deduction from income tax payable, a certain percentage of a portion of the taxable income of individuals which is diverted to payment of insurance premiums. When this tax relief is taken into account it will be found that the assured is n effect paying a lower premium for his insurance.
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