To why you should have Life Insurance let us take a close look at advantages of life insurance:
Life Insurance has no competition from any other business.Many people think that life insurance is an investment or a means of saving.This is not a correct view.When a person saves,the amount of funds available at any time is equal to the amount of funds available at any time is equal to the amount of money set aside in the past,plus interest.This is so in a fixed deposit in the bank,in national savings certificates,in mutual funds and all other savings instruments.If the money is invested in buying shares and stocks,there is the risk of the money being lost in the fluctuations of the stock market.Even if there is no loss,the available money at any time is the amount invested plus appreciation.In life insurance,however,the fund available is not the total of the savings already made(premiums paid),but the amount one wished to have at the end of the savings period(which is the next 20 to 30 years).The final fund is secured from the very beginning.One is paying for it over the years,out period,if so chosen.The assured fund is not affected.There is no other scheme which provides this kind of benefit.Therefore life insurance has no substitute.
There is no similar to a hire purchase scheme.In a hire purchase scheme,the intended purchase is effected immediately,but the price is paid in instalments later.However, in the event of death,the balance instalments are not exused.They have to paid by the surviving family.In the case of life insurance,the premiums cease on death.There are no outstanding instalments.There is no financial arrangement that can be equal the benefits of life insurance.
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Showing posts with label insurance explanation. Show all posts
Showing posts with label insurance explanation. Show all posts
Saturday, November 28, 2009
Friday, November 27, 2009
Working of Insurance
Don't how insurance works let us see the working of insurance practically with examples:
Consider the first situation:
In a village there are 400 houses, each valued at Rs.20,000. Every year on an average, 4 houses get burnt, resulting into a total loss of Rs. 80,000. If all the 400 owners come together and contribute Rs.200 each, the common fund would be Rs.80,000. This would be enough to pay Rs.20,000 to each of 4 owners who houses got burnt. Thus the loss of Rs.20,000 each of 4 owners is shared by 400 house-owners of the village bearing Rs.200 each. This works out to 1% of the value of the house, which is the same as the probability of risk(4 out of 400 houses).
Consider the second situation:
There are 1000 persons who are all aged 50 and are healthy. It is expected that, on an average, 1% of persons aed 50, or 10 persons, may die within one year. If the economic value of the loss suffered by the family of each dying person is teken to be Rs.20,000.If eac person in the group contributed Rs.200, the common fund would be Rs.2,00,000.This would be enough to pay Rs.20,000 to the family of each of the ten persons who die. Thus, the risks are shared by 1000 persons, although 990 of them did not suffer any loss.
In the first example, assume that are 400 houses but of different values. In that case, the contribution of each house owner would be 1% of the value of the house. If the assumption was that 8(2%) out of 400 houses are likely to get damaged, the contribution would be 2%(probability of risk) of the value for each house. The probability of risk does not depend on the value of the house. The probability of risk would depend on factors like the nature of construction of the house(concrete or thatch work) or the location in which it is(residential,commercial or industrial area).The risk is measured in terms of percentages and the contribution would be that same percentage.Similarly in the case of human beings, the probability of risk(death or disablity)will vary according to age,profession,life styles and habits,health conditions,heredity etc.
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Consider the first situation:
In a village there are 400 houses, each valued at Rs.20,000. Every year on an average, 4 houses get burnt, resulting into a total loss of Rs. 80,000. If all the 400 owners come together and contribute Rs.200 each, the common fund would be Rs.80,000. This would be enough to pay Rs.20,000 to each of 4 owners who houses got burnt. Thus the loss of Rs.20,000 each of 4 owners is shared by 400 house-owners of the village bearing Rs.200 each. This works out to 1% of the value of the house, which is the same as the probability of risk(4 out of 400 houses).
Consider the second situation:
There are 1000 persons who are all aged 50 and are healthy. It is expected that, on an average, 1% of persons aed 50, or 10 persons, may die within one year. If the economic value of the loss suffered by the family of each dying person is teken to be Rs.20,000.If eac person in the group contributed Rs.200, the common fund would be Rs.2,00,000.This would be enough to pay Rs.20,000 to the family of each of the ten persons who die. Thus, the risks are shared by 1000 persons, although 990 of them did not suffer any loss.
In the first example, assume that are 400 houses but of different values. In that case, the contribution of each house owner would be 1% of the value of the house. If the assumption was that 8(2%) out of 400 houses are likely to get damaged, the contribution would be 2%(probability of risk) of the value for each house. The probability of risk does not depend on the value of the house. The probability of risk would depend on factors like the nature of construction of the house(concrete or thatch work) or the location in which it is(residential,commercial or industrial area).The risk is measured in terms of percentages and the contribution would be that same percentage.Similarly in the case of human beings, the probability of risk(death or disablity)will vary according to age,profession,life styles and habits,health conditions,heredity etc.
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Insurance is your soldier
Yes, Insurance is your soldier to protect you from unseen consequences. Let us see the reasons.
There are certain principles, which make it possible for insurance to remain a preferred fair arrangement. The first is that it is difficult for any one individual to bear the consequences of the risks that he is exposed to.It will become bearrable when the community shares the burden.The second is that the peril should occur in an accidental manner.Nobody should be in a position to make the risk happen. In other words, none in the group should set fire to his assests and ask others to share the loss. This would be taking unfair advantage of an arrangement put into place to protect people from the accidental risks they are exposed to. The occurence has to be random, and not the deliberate creation of the insured person.
The manner in which the loss is to be shared can be determined before hand. It can be equal among all. It can also be proportional to the risk that each person is exposed to. The trader who has sent Rs.100 lakhs worth of goods on a ship will bear double the loss to be borne by another trader who has got Rs.50 lakhs worth of goods on the same ship. Current practice is to make the sharing proportional to the exposure to risk. The share could be collected from the members after the loss has occured or the likely shares may be collected in advance, at that time of admission to the group.Insurance companies collect in advance and create a fund from which he losses are paid.
Please leave your valuable comments on this post.
There are certain principles, which make it possible for insurance to remain a preferred fair arrangement. The first is that it is difficult for any one individual to bear the consequences of the risks that he is exposed to.It will become bearrable when the community shares the burden.The second is that the peril should occur in an accidental manner.Nobody should be in a position to make the risk happen. In other words, none in the group should set fire to his assests and ask others to share the loss. This would be taking unfair advantage of an arrangement put into place to protect people from the accidental risks they are exposed to. The occurence has to be random, and not the deliberate creation of the insured person.
The manner in which the loss is to be shared can be determined before hand. It can be equal among all. It can also be proportional to the risk that each person is exposed to. The trader who has sent Rs.100 lakhs worth of goods on a ship will bear double the loss to be borne by another trader who has got Rs.50 lakhs worth of goods on the same ship. Current practice is to make the sharing proportional to the exposure to risk. The share could be collected from the members after the loss has occured or the likely shares may be collected in advance, at that time of admission to the group.Insurance companies collect in advance and create a fund from which he losses are paid.
Please leave your valuable comments on this post.
Wednesday, October 14, 2009
Insurance
Insurance:
Insurance can be explained like the future plan in case of avoiding huge financial crisis when any disaster happened to your life or general things that you will be needed in your day to day life. It’s your personal care to assure protection against the damage occurred to the valuable things. You can insure your life and your personal thing like health, travel, auto, and property etc., Insurance is like a deal between you and the Insurance Company.
You pay particular amount called premium to the company for few years or months depending on the plan you have taken and when any damage happened to your personal things or any sudden catastrophe then the Insurance Company take care of your things and help you financially.Types of Insurance and their functions are described in the next post.
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