Till recently, if you asked someone about Insurance, it is quite probable that they would answer something to do with tax savings. Quite naturally, the awareness was limited and the approach adopted was entirely different. All that has changed in the past few years. The opening up of insurance coupled with the radical changes wrought upon various investment options and the changes in job market have led to people now looking at Insurance as an investment option in its own right. It is no more just tax savings or plain insuring of life.

In this article, we have tried to outline some details on Insurance, what kind of Insurance and how to plan etc. by no means is this exhaustive but we hope it sets you working along the right path. Insurance is taken to make good the loss of an asset due to an uncertain event. Example can be loss of a factory by fire, Loss of vehicle in accident, etc . Is Life Insurance also treated the same way? There is a lot of difference even though the concept remains the same. Firstly how do we attach a monetary value to a human life? What are the events that can cause a loss of the human asset? Is’nt death a certain event? Then what is the uncertainty and how can insurance provide security?

What we really need to understand is that Human life is an income generating asset. How much of potential income a person can generate during his working life can be the value that can be attached to him . There are various scientific methods to arrive at the ‘Human Life Value’. For example let us take the case of Mr Vijay , a 30 year old software professional earning an annual income of 3 lakh , He plans to retire at age 55. That means he can contribute a minimum of 75 lakhs to his family during his economic life. His and his family’s entire life revolves around this potential income of his. His children’s education, marriage plans, health needs, etc depend on this and is planned according to this potential income. Life could one day take an unexpected turn. There could be an untimely event like an accident, disability, illness or even death which could decrease or nullify the future potential income. Does that mean that a person’s dreams of providing the best education for his children, providing the necessities for his loved ones also should be laid to rest. This is what an insurance cover can offer. What if Mr Vijay takes an insurance of 30 lakhs . This would ensure that in case of any untimely event that can affect his earning potential , the ultimate being death, Then @ 10% returns his family is ensured of 3 lakhs per annum for the remaining period . This ensures that Vijay’s children can have the best education as he wanted and his family can lead a life as he wanted them to and for which he would have provided only if he was still alive and working to contribute for them . This is what Insurance can do. It is called ‘life insurancce’ because it ensures that the family and loved ones still live on as the breadwinner had wanted.

Is’nt a Rs. 30 lakh of cover on Vijay’s life going to be expensive for him . This is where we come to the issue of what type of insurane cover a person needs. Now Vijay can buy a pure term insurance for 30 lacs for a period of 25 years for as low as Rs 7500 per annum! That is, for as low as 2.5 % of his annual income he can take a cover for 10 times his annual income and secure his annual income for his loved ones. Is’nt this a small price to pay for such a wonderful product? This term insurance is exactly like the vehicle insurance and does not give any returns. This only covers for the risk of dying early before my economic life which would result in the loss of income to family. There is also another risk that insurance can cover. An Endowment type of insurance can cover the risk of living long . That is, it covers for retirement and old age, and provides a substitute for income after retirement. Various combinations and modifications of these two basic products can be used for risk cover and as savings medium to meet the different objectives like child education fund, Marriage Fund, other emergency funds etc.

The need for insurance, type or mix of insurance varies from person to person . It depends on the age of the person, his level of income, member of dependents etc. So there is no single product, which can satisfy the needs of all. Today insurance can be tailor-made for the needs of a person. He or she can modify the plan as his needs change over the years. Today in the context of the importance of insurance being well realized and of various companies able to customize their products to meet the customers specific needs, be it the cover period , paying period, type of product mix, flexibility in paying terms, flexibility in withdrawals, choice of investment funds, choice of risk profiles and minimum guarantees etc. All that it takes is to realize that there is this need for insurance and if he knows what exactly he needs, the right product can be made for him.

There is another approach one can take. Talk to a professional advisor or consultant who will choose the right mix. For example, there is a policy called Keyman Insurance which is offered by a certain Insurance company which can be of use to both companies and the investor.

To sum up Insurance is the closest substitute to love. If ever ‘love’ can be replaced there cannot be a better option than insuring yourself and secure your dreams for your loved ones.

Let your dreams live beyond you.

(The article was contributed by Libu Mathew Joseph, Agency Manager with Birla Sunlife Insurance co. Ltd. with some inputs from the businessgyan editorial team. Feedback can be mailed to This e-mail address is being protected from spam bots, you need JavaScript enabled to view it )\n This e-mail address is being protected from spam bots, you need JavaScript enabled to view it )"

Issue BG23 Feb03

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