Insurance: Insurance protection is necessary in every phase of life, how many types of options are there, how does the policy work?

Life Insurance Importance :Nowadays it is rainy season, in such a situation, if you go out, what do you do for your safety. Your answer will be that we go out with a raincoat or umbrella, which provides protection from the rain. But do we worry about protecting our life and financial well-being from the risks that come in life? Most people’s answer will probably be no, because we always feel that we have time and there is no possibility of anything like accident or death. Due to such confidence, many people do not think about life safety and also stay away from taking the benefit of insurance.

Plan on time instead of confidence

Looking back at the events of a few months back, the Covid 19 pandemic had shattered the sense of confidence and made all of us aware of the financial losses that such risks can cause. Just like a raincoat or umbrella protects you from the rain, don’t you want the same protection for your life? Wouldn’t you want such an umbrella/raincoat or helmet? I am sure your answer would be ‘yes’.

There is less awareness about insurance in the country

Despite the pandemic, insurance penetration in India remains around 4% of gross domestic product (GDP), while the global average is 6.8%. Life insurance penetration remained abysmal at around 3% in FY23, even though we live in truly uncertain times. Whether you are starting life or starting a family, insurance is the protection everyone should have in their portfolio to protect themselves from all kinds of uncertainties.

Many insurance options

The good news is that you can insure yourself and your family against all kinds of risks, not just life. From medical insurance to travel insurance, there are insurance options available for different needs. But the most important of them all is life insurance. In the insurance industry, we often say that our biggest risk is either dying too young or living too long. For both, you need cover/protection. While you can buy a term life cover to cover the pure risk, you can also look at long term products that come with a life cover and unit linked products i.e. ULIPs, which will show the magic of compounding on your money in the long term.

Insurance is necessary for everyone

It is a myth that only middle-aged people with children need to buy life insurance. Whether you are just starting your career or you are married and have children, life insurance gives you the assurance and peace of mind that in case of an unfortunate event, your family or loved ones will not be in trouble.

How does life insurance work?

Buying life insurance is an important part of long-term financial planning as it provides protection. When a consumer buys a life insurance policy, it is a contract between the policyholder and the company. The policyholder has to pay premiums for a fixed policy term and if the policyholder dies, the insurance company pays the sum assured to the policyholder’s family.

One of the many questions asked by consumers is that when they buy a pure risk cover or term insurance policy, they pay small amounts over a long period of time to buy that protection. But if nothing happens, they never get their money back. The prices of term cover are very low to make it easier for people to buy it, while these days insurance companies are also offering ROP (Return of Premium Plan).

What is the return of premium plan?

Return of premium plans include maturity benefits wherein the premium paid to secure the policy is returned if the insured person survives the stipulated policy term. Another type of term policy also allows policyholders to convert their policy to alternative plans such as endowment plans or whole life plans in the future.

(Author: Manish Alagh, Senior Executive Vice President – Head Tied Agency & Direct Marketing Distribution, Kotak Mahindra Life Insurance Company Limited)