Life is a combination of two words Life +Insurance. Life is the most precious element on earth and “insurance” protection against hazards /risk/uncertainty. Thus life insurance protects our dependents against the loss of life of the bread winner. No one wants to die but everyone has to die and that too at an uncertain time and unknown to all. This uncertainty of death gave rise to the concept of life insurance. No one knows what will happen in the next moment. This uncertainty in life brings a moral compulsion for the bread winner to insure himself for his loved ones, so that even after his death, the life of the dependents doesn’t get jeopardized.
In the present economic scenario human needs can be structured in three forms:-
Financial aspect
Finance plays a very important role in a person’s life. Thus, financial security becomes important and therefore full attention should be given to this area. Here, Insurance plays the best role in fulfilling these needs. Yet even now people are not willing to take insurance by choice. Insurance products are sold. The reason behind this could be that benefits actualize after a long term and insurance is an intangible product.
The most valuable capital investment of an individual is his character, his knowledge, his expertise, his business, his ability to work and earn. Life insurance premium is merely the cost of perpetuating this capital value of life for self in old age and for your family should something unfortunate happen. In addition, it is a saving for old age, for children’s education and marriages etc. Hence, Life insurance is the basic of any financial investment.
Emotional aspect
Insurance is significantly concern with emotions. Insurance is meant to cater to unpredictable and deferred needs. It should however be purchased well before its need arises. It is of little use digging a well when thirsty, or trying to lock the stable when horses have fled. People generally keep on procrastinating purchasing insurance as they don’t realize the immediate need of it.
Philosophical aspect
When an individual dies, three deaths occur, viz. that of
1. The individual himself /herself
2. A father /mother.
3. A bread winner of the family.
The third death is the most disastrous as it results in the stoppage of the income; the family is made to face a financial crisis. In such situation at least the effect of third death can be mitigated if the person is adequately insured.
On the other side, the money collected in the form of the premium does not remain idle with insurer, but it invested in nation building activities.
The UN Declaration of Human Rights 1948 provides that:
“Everyone has a right to a standard of living adequate for health and well being of himself and his family, including food, clothing, housing and medical care and necessary social services and the right to security in the event on unemployment, sickness, disability, widowhood or other lack livelihood in circumstances beyond his control”
Life Insurance provides for alternative arrangement in the event of the unfortunate death of the Bread winner of a family. Thus the economic condition of the family is not affected and the life insurance business is complimentary to the state’s efforts in Social Management.
Quantum of life insurance
What should be the quantum of insurance depends on the human life value. Each and every human being has different status (living standard, financial capacity, service etc) in society. On basis of his status, the value of his life and value of life insurance to be taken are decided. This value of life is called “Human life value”. Human life value is the monetary worth of an earning person and is the capitalized value of his net future earning minus the cost current self- maintenance. Human life has economic value. The economic value of each individual varies and it depends on various factors;- education, health, earning capacity, character, training and ability to work etc.
Thus, we see that in life financial planning is very important. But while planning for different instruments priority setting is the most crucial activity. If we invest improperly than we may not get the desired result. In our priority setting exercise the investment in life insurance should have the first place and then whatever saving is left should be diverted into different instruments. Life insurance is the only instrument which not only gives peace of mind but also reasonable return on investment. This peace of mind is the highest return on any investment.
