Broadly the basic objectives for taking insurance can be classified into 3 categories:
- Risk coverage
- Savings and Investments
The most basic and the inherent objective of insuring oneself must be to cover the risk part. The objective is to ensure a fund for a future uncertain event like death. But the fact of the matter remains that risk is the most neglected of insurance aspect across all the countries. Such an insurance policy that covers pure risk is referred to as the term plan. It covers the life for a fixed premium against a sum assured. There are no survival benefits. The sum assured is paid in case of death of the life assured during the policy period. The premiums for the term plan are the lowest among all other plans. It would cost a person in the age group 20-30 around $ 0.30 (30 cents) a day for an approximate risk coverage of $25,000. Minuscule, isn’t it? But somehow the insurance companies are also hesitant to promote this product, for it accounts for less revenue compared to other savings and investment products.
Savings and Investments
Saving regularly to create a corpus which can be utilized at a future date for a particular occasion is another reason why insurance products are subscribed to. The objective is to save for the future certain events (unlike term plans where the objective is to insure against the uncertain event of death). Regular cash outflows at regular intervals are paid into the insurance product. These cash payments attract bonuses (interests) from the insurance companies and the corpus keeps on accumulating. A marginal amount of insurance in case of death in attached to the product. The accumulated corpus is paid at the end of the period.
The world is growing grey with each passing moment and the retirement solutions are gaining importance along with. Everyone gets haunted with the thought of what if I have no money after retirement? How do I sustain my standard of living? How do I sustain myself? Starting early is the key to create a large corpus for retirement. There are no death benefits and the risk coverage is zero. The objective is to sustain the certainty of old age.