Insurance today has several implications for
people from different economic backgrounds, however the basic concept of life
insurance still remains the same and universal – to provide for unforeseen
contingencies of death and disability of a working or earning member of the
family.
Scope
The term life insurance has financial as well
as legal implications which need to be understood categorically before delving
into the details of any polices.
Financial Implications:
Life Insurance is a financial arrangement, which redistributes the costs of
unexpected loss of life among the members of the pool. The pool is a collection
of people facing common risks. All members contribute a fixed amount towards a
pool called premium. In exchange for the premium payment, the person gets an
assurance that a certain sum of money is to be paid to him or his nominees on
the happening of the event insured against
Legal Implications:
Life Insurance can be defined as a contract between two parties by which one
party undertakes to make good or indemnify any financial loss suffered by other
party, in consideration of a sum of money, on the happening of a specified
event e.g. accident or death.
The
scope of life insurance can be broadly stated under the following aspects:
§ Insurance of life is a risk sharing
instrument.
§ Life insurance is essentially a
cooperative process in which a large number of people have to taken into the
fold of the insuring agency and create a pool.
§ The value of the life has to be
estimated in order to estimate the share of each individual in terms of
premium.
§ Payment contingency in case of life
insurance is either at death or at the expiry of term either of which will
definitely occur. Thus this contract is a contract of certainty.
§ Insurance is not a form of gambling
and it rather serves the purpose of eliminating uncertainty of financial
situation by providing for unforeseen events. It additionally serves to
increase the productivity of the community by eliminating worry and increasing
initiative.
§ Insurance is not a form of charity
as the sum assured is paid out against regular payment of stipulated premium.
A Tool for Social Security
Life insurance is one of the most effective
tools of social security across the globe. In the absence of such a provision
to the common people, the society will have no redressal for pitiful elderly
masses, helpless widows, unprotected orphans; the factories will have to be
scrapped after a fire; the houses will not be rebuilt after being struck by any
calamity. With such events and more any economy cannot be stable leave alone
the growth.
Our state, unlike the socialist or a
developed capitalist society where states are responsible for the deprived and
destitute, is ill-equipped to do so. Constitution of India has relevant clauses
under the directive principles of the state policy. In article 41, it clearly
dictates the state within its monetary and development capacity shall take
effective measures to secure the elementary right of work, education,
employment, health and any other undeserved want of every citizen.
Nevertheless, the failure of states is evident
to all, with only a few schemes floated like the one for socially
disadvantaged. Providing equal rights and opportunities for all is easier said
than done. In the absence of the bread winner of the family there is little
that the government or other social agencies can do to look after the welfare
of those left behind. The same is true even in the most economically advanced
nations.
Thus in order to ensure that the people left
behind continue to enjoy the same privileges in society as before and thus stay
with the mainstream, life insurance is a probably the best and only social
security tool against unforeseen eventualities. It not only creates security
but also goes ahead to foster a respect for savings to be able to secure future
of the entire family.
A Tool for Independence
One has only three resources to fall back
upon when a calamity strikes: savings, charity and insurance. Savings is a slow
and tedious process as on average one saves only 10% of the earnings and they
consume a life time to accumulate into something meaningful that can really
come handy in a crisis. Additionally the exact amount that will be required is
quite unpredictable making savings insufficient at most critical junctures.
Charity on the other hand is demeaning and unreliable since it is completely at
the mercy of the provider. Thus insurance remains the only and most viable
option to fall back upon whenever crisis takes place.
Insurance is a product of ones farsightedness
and present sacrifice for future anticipated gains and is thus commensurate
with his self-respect and dignity. It encourages economic independence and is
thus a tool of social security par excellence. The concept of life insurance
has come a long way from its inception and today also provides a smart avenue for
investment where the policy holder not only secures himself against unforeseen
contingencies but is also able to create wealth over a period of time by
letting the money paid towards insurance be invested in market oriented
instruments.
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