Importance and Advantages of Life Insurance

Life insurance occupies a central place among the financial arrangements of an individual, a family and the nation because it converts an uncertain, uncontrollable risk — the risk of dying too soon or living too long without income — into a certain, planned sum of money. Its importance can be seen at three levels.

To the individual and the family

• Financial protection to dependants. The most important benefit is that the family of the life assured receives the full sum assured on his death, cushioning them against the sudden loss of the earning member's income.
• Encourages regular, disciplined saving. A policyholder must pay the premium on time; this compulsion turns life insurance into a systematic long-term saving habit that many people find hard to maintain on their own.
• Provision for old age. Endowment and pension-type policies mature when the policyholder is older, providing a lump sum or regular income for retirement when earning capacity has fallen.
• Aid to other purposes. A policy can be assigned or used as security for a loan, and the insurer itself usually grants loans against the policy's surrender value, so the saving is not locked away completely.
• Tax advantage. Premiums paid and the money received under a life policy enjoy tax concessions under the income-tax law, adding to the net return.
• Peace of mind. Knowing that the family is financially secure whatever happens frees the policyholder from constant anxiety and allows him to work and take reasonable risks with confidence.

To business

• A firm can insure the life of a key person (a partner or a specially skilled employee) so that the business is compensated for the loss of profits or disruption caused by that person's death.
• Life policies on partners help fund the smooth settlement of a deceased partner's share without straining the firm's finances.

To society and the nation

• Life insurers collect small premiums from millions of people and build up vast pools of long-term funds, which are invested in government securities, infrastructure and industry — a major source of capital for the country's development. …