importance of Life Insurance in financial planning
Hello guys, Today our topic is “The importance of Life Insurance in financial planning”. So, let’s start our today’s topic. I am sure that you will understand easily. Life Insurance is a very important part of financial planning in our lives. Let’s understand through some examples.
Financial Planning without Insurance
Mr. Ali wants to save One Million Rupees (1,000,000) for his Son’s higher education. He is doing a job in a private Company. His Monthly salary is One Hundred Thousand Rupees (100,000). This means that his annualized salary is 1.2 million rupees (1,200,000). He can save One Hundred Thousand Rupees (100,000) Annually and will be able to save One Million Rupees (1,000,000) in the next 10 years. So he decided to save One Hundred Thousand Rupees (100,000) by himself without buying an insurance policy.
Later on, after 3 years, Ali has had severe accidents and is paralyzed. So, He is unable to continue his job. He has no other source of income to feed his family. He has to use all his savings by all means. So without the insurance policy, he may not be able to achieve his goals.
importance of Life Insurance in financial planning
Mr. Ali wants to save One Million Rupees (1,000,000) for his son’s higher education. He is doing a job in a private Company. His salary is One Hundred Thousand Rupees (100,000) monthly. It means his annualized salary is 1.2 Million Rupees (1,200,000). He can save One Hundred Thousand Rupees (100,000) annually and will be able to save One Million Rupees (1,000,000) rupees in the next 10 years. So, this time Mr. Ali visited the insurance company office and purchased an insurance policy. The insurance company guaranteed him One Million Rupees (1,000,000) as a Sum Covered.
Later on, After 3 years Ali had a severe accident and died. Insurance will pay One Million Rupees (1,000,000) to Mr. Ali’s family. So financial planning with the Insurance, helped Mr. Ali to reach their final destination despite he is no more with his family. The Insurance helps you when even your loved ones don’t. This is the importance of Life Insurance in financial planning.
Now my 3rd example is Life Insurance Policy with the Riders. But firstly, you must know “What is Rider”. So, let me explain Riders before continuing our main topic.
What are riders?
Riders are the extra benefits offered by insurance companies by receiving nominal charges. Normally, The Insurance Companies offer two types of Riders. First is Compulsory Riders, Which are already included in the Insurance Plan or Policy. The second type is Optional Riders, Which is “User’s Choice”. If the Customer wants to buy any of the Optional Riders, then the Insurance Company adds the selected Rider to the Insurance Policy. The importance of Life Insurance in financial planning.
Example of Rider
Once, I visited KFC a few days back with my family. We ordered the deal but before the final order, the sales girl offered an ice cream with this deal by charging 80 Rupees extra. The deal price was Four Thousand Rupees (4,000) and we had to pay just 80 rupees for ice cream. So we accepted the deal. The Price of the ice cream is Rs. 80 only with this dead. But if you want to buy this Ice Cream separately, then the price of Ice Cream is Rs. 130.
So, you can assume this Ice Cream is a Rider. So the extra benefits offered by the insurance company called Riders. The Rider we will use in the next example for “the importance of Life Insurance in financial planning” is the “Accidental Death Benefit Rider”.
Accidental Death Benefit Rider
This is the “Optional Rider” in which the customer will get the double amount of Sum Covered in case of death due to an accident.
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importance of Life Insurance in financial planning Example with Rider
Mr. Ali purchased a policy of One Hundred Thousand Rupees (100,000). The insurance company guaranteed him One Million Rupees (1,000,000) as a Sum Covered. Unfortunately, Mr. Ali had a severe accident and died. Now the company will pay Two Million Rupees (2,000,000) to Mr. Ali’s family. These One Million Rupees (10,00,000 extra which the insurance company paid to Mr. Ali’s family is an accidental Care Benefit. In case of an accident, the Sum Covered will double, that is called accidental care benefit.
Conclusion:
So, I hope you have understood the “importance of Life Insurance in financial planning” of Human Life. Uncertainties are the most crucial part of our lives. So, We always should be ready for any upcoming Uncertainty to avoid disasters.
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