The Need for Insurance

Let's understand "Need for Insurance" through a case study 

Ajay is 35 years old and works for a multinational corporation (MNC). He has a 10 year old son, Vijay, whom he dreams will one day become a doctor. Ajay's spouse is a housewife, and his parents are retired and dependent on him. Ajay has a home loan and is making monthly investments for Vijay's higher studies and marriage and his own retirement. Ajay wants to ensure that Vijay gets the best of everything and that he himself is not dependent on Vijay during his retirement in the way to Ajay's parents are on him. So far everything is going well with Ajay's plan. But imagine what will happen in the following scenario.

One day while returning home from the office Ajay has an accident and dies. What will happen? Who will take care of the family, Vijay's education and marriage, Home loan etc? What are the option available to Ajay so that his family can be taken care of in his absence?

Now  put yourself Ajay's shoes and imagine you are the family income provider and have to face the above scenario. What will you do? 

Relax! Our intention is not to panic or scare you. We are using this case study to try to help you realize the importance of insurance which is the solution to all the problems Ajay faces should the above scenario happen. So, lets look at the scenario again and see how insurance can provide a solution.

Life Insurance provides protection to a family on the untimely death of the income provider. If Ajay has a  adequate life insurance cover, then should he die, the money received from the life insurance company can help to support his family.The insurance money will help to take care of the family living expenses, Vijay's education and marriage, and the cost of the home loan etc.

The Basics of Life Insurance

What Is Life Insurance?
Life insurance offers a way to replace the loss of income that occurs when someone dies (usually the person who produces the majority of income in a family situation). It is a contract between you as the insured person and the company or "carrier" that is providing the insurance. If you die while the contract is in force, the insurance company pays a specified sum of money free of income tax — "cash benefits" — to the person or persons you name as beneficiaries.

A good life insurance program does more than just replace the loss of income that occurs if you die. It should also provide money to cover the new costs that arise after your death —funeral expenses, taxes, probate costs, the need for housekeepers and child care, and so on. And these cash benefits should provide for your family's future needs as well, including college education for your children and part or all of your spouse's retirement needs. In almost all cases, your beneficiary can use the cash benefits in the way he or she sees fit, without restriction.

Do You Really Need Life Insurance?
If there is someone who would suffer economic hardship if you died, then the answer is yes... you need life insurance!  Families with young children have a clear need for life insurance. If both spouses work, the loss of one income will cause the family immediate economic hardship and make it harder for them to realize future goals, such as paying for the children's' education. But even if one spouse works "inside the home" and doesn't bring in a formal income, his or her death will require the surviving spouse to hire child care, housekeepers and other professionals to help run the household - and that can be a significant new expense.

If you are married without children or single, then you may need life insurance to protect your partner or surviving family members against the costs associated with your death.  Funeral expenses, probate and administrative fees, outstanding debts, special obligations to charities, and federal and state taxes are costs that all of us must consider.  And, they can add up quickly. Unless you already have sufficient financial resources, your survivors will probably need life insurance to cover these expenses.

What Happens To Your Family If You Don't Have Enough Coverage?
Under any circumstances, the loss of a loved one is a traumatic experience.  But, if your family is also left without sufficient money to meet basic living needs or prepare for future goals, they will have to cope with a financial crisis at the same time. Depending upon their current financial resources and ability to "get back on their feet" emotionally and financially, your family might be forced to move to a less desirable home or community, abandon education and career plans, reorder family priorities (such as the amount of time spent with the children) and, in general, cut back on the quality of life you have worked hard to achieve.

Your family might even be forced to go into debt simply to pay the expenses, like funeral costs, taxes, and medical bills that result from your death.  A moment's reflection will tell you that the lack of sufficient life insurance coverage when a loved one dies can have devastating consequences for a family...consequences that can last for years.