Life Insurance is a contract between the “insurer” and the “insured” in which the insurer legally commits to pay a designated “beneficiary” sum of money – also called as the “benefits” on the occasion of the death of the person to the “beneficiaries” pre-nominated by the insured.
Depending on various conditions and circumstances like terminal critical illness, the benefits may be paid. The actual benefit amount however varies from policy to policy. For that matter, even the condition in which the payment would accurately be paid also changes drastically.
Nevertheless, what remains common with this entire affair are that the insured has to purchase a particular policy from an array of policies cutting his needs. The purchase amount can either be paid in one or few lumps, typically, on a continual basis. In this situation, the payment is referred to as “premium.”
However, one primary fundamental question remains
Who actually needs insurance?
Do all of us need it?
Some of us need it?
Or yet further, no one else needs it! In this article, therefore, we would try to understand who exactly needs it and under what situation. We also briefly look into the issue of choosing an appropriate policy for one’s needs.
Who needs Life Insurance?
You might have figured it out by now that the Life Insurance never benefits the insured. Quite logically because the benefit(s) are fulfilled only on the death of the person. Therefore, it is critically important for the policy purchaser to have a good understand and prudent foresight into the needs and various other factors which we are going to explore in this section.
Typically one who is planning for insurance needs to make a proper reckoning of the long-term needs, short-term needs and business needs (if any).
One of the primary reasons people buy Life Insurance from legends like Life Insurance Corporation (LIC) or SBI (State Bank of India) is to arrange for the family members who might depend on even after s/he is gone. Thus, many dependents of the family are essential criteria to discern whether one needs a Life Insurance or not. Consequently, if you can reckon that there would possibly be no dependents at any point in your life then one probably does not need life insurance in the first place.
Similarly, if you could make a good approximation of the total property that you would leave behind and the expenses incurred on the dependents, then you would be able to get a sense if you need to invest in Life Insurance. Simply put, if the cost behind the dependents can be covered in the property you leave behind, then you probably do not need to purchase any insurance.
If your dependents are soon to reach an age and a situation where they would be no more “dependents,” maybe they are soon to pass out from college, then in this case as well there remains no need to arrange for any Life Insurance.
Short term needs
Quite contrary to whatever written above, you may leave behind a property kind enough to take care of the needs of your dependents, however, the processing of documents which would smoothly pass on the inherited property to your name might take some time. And in case, if this processing time is a bit too long to meet your immediate (“short-term”) needs then Life Insurance may come handy.
You must also keep an eye on the debts and taxes that you might have to pay. If these overheads are more than what you would leave for your dependents, then you might have to reconsider everything. This becomes particularly important when you leave behind the property which is non-liquid; that is, property which cannot instantly be converted into money. In this situation, you non-liquid asset might have to be sold to pay the debts and taxes. But naturally, it is a loss to sell non-liquid assets (jewelry, for instance). And this is a place where Life Insurance might play its role. The Insurance benefit(s) could be used to indemnify the debts and taxes. This way you would save the precious non-liquid assets as well!
If you own a business in partnership with another partner (s), then you might not think of Life Insurance for your business needs. However, if you own the business solely and plan it to be succeeded by another person after your death, then Life Insurance might come into play.
At your death, if the business needs cash flow to regulate daily business proceedings then the proceeds from Life Insurance could pay for it. Similarly, reckoning prudently of the potential business losses which might incur debts to be indemnified by your business successors, then a Life Insurance could be useful in this emergency situation.
The final words are, as observable, there can’t be a “yes” or a “no” as far as purchasing Life Insurance is concerned. You would have to cipher your needs prudently to assess the current situation and the situation which might come up in case of your expiry. Based on this assessment of your needs could you be able to decide whether it is profitable to invest your hard earned money behind Life Insurance.