The practice of life insurance has been known to exist in some form or other since 3000BC. The origins of insurance business as in vogue at present are traced to Lloyd’s Coffee House in London. Various insurance companies were set up in India in 1800’s & 1900’s. In the year 1956 the life insurance business was nationalised and Life Insurance Corporation of India (LIC) was formed on 01-09-1956. LIC enjoyed the monopoly in Life Insurance business till 1999 when the rules were again liberalised and private operators were once again allowed entry in Life Insurance Business. A human being is also an income generating asset. The concept of “human life values” provides scientific ways to determine the asset value of the human life and accordingly, the amount of life insurance required will largely depends on one’s ability to pay premia from his regular income.
A human life can be lost unexpectedly , due to early death or through sickness or disabilities caused by accidents. Another material factor to be kept in mind is that death will certainly happen and only the timing of the same is uncertain. Living too long can be as much a problem as dying too young. Both are risks which need to be safe guarded against and an insurance coverage can take care of all these situations. Life Insurance has no competition from any other business. Many people think that life insurance is an investment or a means of saving or should be done for saving taxes which is not entirely true.
In case of life insurance the fund available is not the total of the savings already made (premiums paid) but the amount one wished to have at the end of the savings period (which is the next 20 or 30 years) The final fund is secured from the very beginning as one is paying for it out of saving from the very beginning over the years. One has to pay for it as long as one lives or for a shorter period depending upon the period or the plan chosen. The assured amount is not affected by the choice of plan/period. There is no scheme which provides this kind of benefit. Obviously and very logically, life insurance has no substitute.
Advantages of Life Insurance
- In the case of Life Insurance the premiums stop on death, there are no outstanding installments and the full benefit is paid to the nominees.
- Creditors cannot claim the life insurance moneys. Insurance claims can be protected against attachment by courts. These are paid to nominees (family members) without any objection from any body else.
- There are tax benefits, both in income tax and in capital gains.
- Life Insurance Policies are marketable as liquid property as these can be transferred or mortgaged.
- Loans can be raised against insurance policies up to a percentage of premiums paid.
- Life insurance is the one of the most potent way for family protection. There is no other way.
- Insurance is the only way to safeguard against the unpredictable risks of the future. In a way it is unavoidable.
- The value of human life is not measurable and only insurance can preserve it to an extent.
- Life Insurance is not surpassed by any other savings or investments instruments in terms of security, marketability, stability or liquidity.
- Life Insurance enhances the existing standards of living.
- Life Insurance helps people live financially solvent lives.
- Life Insurance perpetuates life, liberty and the pursuit of happiness.
- Life Insurance is a way of life.
—The authors, a renowned duo of tax and investment consultants have volunteered to contribute to this column for the readers of Salute