Why Life Insurance
Advantages and Disadvantages of a Life Insurance Policy
The following are some of the advantages and disadvantages of a Life Insurance Policy:
A) Financial Security
Life Insurance is a powerful means to provide financial security. When the breadwinner of a family dies due to some unexpected events or for reasons like prolonged illness the life insurance policy is a boon to the family. They can make use of the funds paid by the insurance company to meet their needs without which they would have landed in a financial lurch.
Life insurance is another means for saving. Individuals and families who take up a life insurance policy have to pay premiums periodically. Therefore they will naturally be forced to allot sufficient funds for this purpose. This practice encourages thrift and also helps them to plan for some productive schemes in a similar manner.
Life Insurance Policies also help people to take care of their families in case of retirements. This can come as a great relief especially if the person who retires does not have alternative sources of income to take care of his family.
Life insurance polices are indicators of financial credibility.
Therefore this factor can help individuals and institutions to borrow
money and raise adequate finance as and when they are needed.
Similarly it reduces the employer's burden of paying compensation to
the deceased family as many companies are following group insurance
policies.
B) Diverts States Resources for Other Purpose
One important responsibility of the governments in any country is to take care of the old and dependent population. Many developed countries like U.S. and Canada collect a large amount of funds from the employed citizens to meet these needs. The state also allocates few funds for this purpose. With the increasing awareness of insurance the governments can be assured of spending less for the old. Though this will not absolve their responsibility it will help to reduce the quantum of their investment. As a result they can concentrate on burning issues and problems in the society.
C) Facilitates Economic Movements
Life insurance companies collect premiums from multiple investors. They are thus able to mobilize large funds. This money is used to finance trade and development activities. Ultimately production of goods and services will flourish and the economy of the nation will be improved.
D) Helps to Avail Tax Exemptions
The policy holders are entitled to claim income tax exemptions for paying the premiums. The amount and the extent to which they are allowed depends on other factors like the persons income and if the insurer is a private player or run by the state. This provision will indirectly tempt people to invest in insurance and attain a mutual benefit of tax exemption and providing security as well.
Disadvantages of Life Insurance Policies
The life insurance policies have a few disadvantages listed as follows. They are
A) Incompetent Personnel and facilities in the industry
Not all insurance companies are equipped enough to provide the consumers with life insurance policies they actually require. Many Insurance corporations have emerged after realizing the vast market potential and the untapped new segment. These companies are by and large interested in making huge profits rather than helping the general public with insurance. In the process they hire unskilled people and provide poor infrastructural facilities.
The insurance companies do not make use of modern methods to find the
value of loss of goods insured .This alarming trend seen even in some
developed countries is poised to stunt the growth of insurance
industry. However with the advent of globalization multi national
corporations have been constantly acquiring and merging with these
companies. They are therefore able to provide the necessary impetus
and remove this setback though not to the full extent.
B) Lack of Consumer Awareness
The ultimate consumer is still not aware of life insurance policies. The level of his understanding is not sufficient. This is partly because of the reason said above. Some of the domestic companies don't have the technical expertise to implement the latest practices.
Moreover the services of insurance agents could sometimes do more bad than good. Some of them try to convince their clients to invest more or to choose certain policies which are not much beneficial to the clients. A person will find himself in trouble if he invests more than what is actually required. Since some agents indulge in unethical practices, this has led to wrong mindsets among general public about insurers.
The number of advantages outnumbers the disadvantages. Life insurance is a savings option that helps the individuals, general public, business houses and the nation at large.It is therefore a wise move to choose a life insurance policy. The consumer has to gather life insurance information before choosing a particular policy.
