Ever since private companies could solicit insurance policies, there has been a steep growth in the insurance sector. With more people realising its importance, the future looks promising for the insurance industry.
Often it is being reiterated by financial experts that an insurance policy is not an investment. However, many fail to understand this concept and continue to use it as investment instrument to make hefty corpus. If that was the intention, it could be a sheer disappointment as insurance needs to be treated differently.
Just like a coin has two sides, an insurance policy too has its own advantages and disadvantages. Knowing the both aspects will give you a clear idea about how you can use an insurance policy to your benefit.
Advantages of Insurance Policies
The following are some of the advantages of taking an insurance policy.
Perfect cover for your family after you are gone: As it is impossible to predict the future, no one knows what happens next. Protecting your family from an unforeseen potential peril could be your top priority. An insurance policy can render a helping hand when you are unable to support your family or after your death.
Benefit of compensation: The financial loss caused by the peril is compensated by an insurance. If the untoward incident happens before completion of the tenure, you can claim the financial loss covered under the insurance without much hassle. It reduces lot of your mental stress and agony caused by the peril. In case of life insurance, your family gets a financial cover after your death.
Tax Benefits: irrespective of the insurance plan you buy, you can claim tax benefits up to 1.5 lakhs under section 80C as per Income Tax Act 1961.
Financial support post retirement: There are special insurance plans that are tailor-made to support after your retirement. It makes you financially healthy after when you would not be able to earn money at old age. Moreover, buying an insurance at a young age becomes cheaper in the long run.
For specific purposes: An insurance is earmarked for specific goals unlike other financial instruments. This helps you utilize the funds for the purpose you had initially opted.
For smooth business operation: Even when you meet with unexpected loss in the business, an insurance can help you manage the loss. An insurance policy taken for your employee becomes a motivating factor at the workplace and helps in smooth business operation.
Disadvantages of Insurance Policies
Tricky terms and conditions: While taking an insurance policy, some of the terms and conditions could be tricky that you may not get compensation for all the losses. It is important to read through the conditions before buying it.
Lengthy legal formalities: Though you may have opted for a good plan, claiming the insurance money could take a long time due to its lengthy legal procedures to be carried out by the company.
Potential crime incidents: Life insurance policies could lead to potential crime incidents as the beneficiaries of the policy might get tempted to resort to wrong ways to get obtain the insured amount.
Conclusion
While every financial instrument will have both advantages and disadvantages, it is recommended to choose wise based on your need and purpose. You can benefit from an insurance policy provided if the goals are clearly realised.
FAQs:
- What are some of the primary advantages of an insurance policy?
- Perfect cover for your family after you are gone
- Benefit of compensation
- Tax Benefits
- Financial support post retirement
- For specific purposes
- For smooth business operation
- What are some of the disadvantages of an insurance policy?
- Tricky terms and conditions
- Lengthy legal formalities
- Potential crime incidents
- How can you utilize insurance policies as a savings tool?
You can use ULIPs – Unit Linked Insurance Plans, which give market linked returns as a savings tool.
- Are Term Plans better than Life Insurance Plans?
Term Plans come with high sum insured at nominal premiums; Life Insurance Plans come with higher premiums. However, Life Insurance Premiums have a maturity benefit while Term Plans only give death benefit.
- Is Motor Insurance policy a must in India?
Yes, every vehicle should have a motor insurance policy in India.