Why is Insurance Important?
Insurance works like a cushion which helps you or your family bounce back financially after an unfortunate event. Whether it's business or family both can benefit immensely from insurance.
1. Distributes Large Risks
Insurance is a financial instrument. The risk of significant loss due to an event is borne by a large group of people exposed to the same possibility in a business. Thus, the losses are distributed over a large group making it bearable for each individual.
2. Provides Financial Stability
Without insurance, it will be extremely costly for businesses to bounce back after a major loss of inventory. Natural hazards, accidents, theft or burglary can affect the financial status of a business or a family. With Insurance compensating a large part of the losses businesses and families can bounce back rather easily.
3. Helps Economic Growth
Insurance companies pool a large amount of money. Part of this money can be invested to support investment activities by the government. Due to the safety concerns insurers only invest in Gilts or government securities. On the other hand, governments can raise funds easily from insurers for large public projects, which aid in economic growth.
4. Generates Long-Term Wealth
Insurance is often a long-term contract, especially life insurance. Life insurance plans can continue for more than three decades. Within this time they will collect a large amount of wealth, which returns to the investor if they survive. If not, the wealth goes to their family.
Need for Insurance
Insurance is an essential financial tool that helps in managing the unforeseen expenses smoothly without much hassle. However, this is not the only reason a person needs an insurance. Listed below are a few more reasons you need to buy an insurance:
1. Tax Benefits
Any payments received from life insurance plans are completely tax-free if your investments have met a few simple conditions. Most life insurance premium payments and investments are tax-deductible. Thus, insurance reduces your tax liability in the present and future.
2. Achieve Retirement Goals
Insurance plans like guaranteed savings plans and ULIPs are some of the best retirement saving options available. You can also use deferred annuity plans to safeguard your post-retirement income when you are close to retirement.
3. Stress-Free Life
With the right insurance plan, you can remain stress-free from unforeseen risks causing major financial damage. Insurance will help you and your families bounce back to your normal financial life quickly after a mishap. Insurance also keeps your long-term investments safe from sudden financial shocks caused by emergencies.
Types of Insurance
Insurance is a financial protection or mitigation tool against possible unforeseen hardships. The insurer assesses the possible hardship and pays in line with the agreed policy. Such an amount is termed “Sum Assured” or “Sum Insured” or “Insured Value” etc. It is imperative to know how insurance can make a positive impact on our lives