What is Life Insurance?
Life insurance may be described as a social device to ensure protection of economic value of life and other assets of a person. Under the plan of insurance, a large number of people associate themselves by sharing risks attached to individuals. The risks, which can be insured against any type of accident (fire, water, road, etc), met out by a person. Any risk contingent upon these, may be insured against at a premium commensurate with the risk involved. Thus collective bearing of risk in life is life insurance1.
Life insurance is a contract whereby, in return for the payment of premium by the insured, the insurers pay the financial losses suffered by the insured as a result of the occurrence of unforeseen events to a person. The term “risk” is used to describe the possibility of adverse results flowing from any occurrence or the accidental happenings, which produce a monetary loss. Insurance is a pool in which a large number of people exposed to a similar risk make contributions to a common fund, out of which the losses suffered by the unfortunate few due to accidental events are made good. The sharing of risk among large groups of people is the basis of life insurance. The losses of an individual are distributed over a group of individuals.
Importance of Life Insurance2
Life Insurance is of great importance to individuals, groups, business community and general public. Some of the main benefits of life insurance are.
- Protection against untimely death
- Savings for old age
- Promotion of savings
- Initiates investments
- Credit worthiness
- Social security
- Tax benefit
1)Protection against untimely death: Life insurance provides protection to the dependents of the life insured and the family o f the assured in case of his untimely death. The dependents or family members get a fixed sum of money in case of death of the assured.
2) Saving fo r old age: The earning capacity of a person reduces after retirement. Life insurance enables a person to enjoy peace of mind and a sense of security in his or her old age.
3) Promotion o f savings: Life insurance encourages people to save money compulsorily. When a life policy is taken, the assured is to pay premiums regularly to keep the policy in force and he cannot get back the premiums, only surrender value can be returned to him.
4) Initiates Investments: Life Insurance Corporation encourages and mobilizes the public savings and channelizes the same in various investments for the economic development of the country. Life insurance is an important tool for the mobilization and investment of small savings.
5) Credit worthiness: Life insurance policy can be used as a security to raise loans. It improves the credit worthiness of business.
6) Social Security: Life insurance is important for the society as a whole also. Life insurance enables a person to provide for education and marriage of children and for construction of house. It helps a person to make financial base for future.
7) Tax Benefit: Under the Income Tax Act, premium paid is allowed as a deduction from the total income under section 80C.
For citing this article, use:
- Nasar, S. (2013). Performance evaluation of marketing practices of life insurance corporation of India_A study with reference to Ramnad District.
- Binod Kumar, (2010). “An Empirical Study on Perception of Consumer in Insurance Sector”, Indian Journal o f Economics and Business, Vol.9, No.l, pp.61-73.
- Gupta C.B., (2005). Business Organization and Management, New Delhi: Sultan Chand & Co pp. 156