WHY DOES ONE NEED LIFE INSURANCE?
It is estimated that in Nepal, less than 6% of the population has some form of life insurance, provided either by group or individual policies even though Nepal Insurance Company Limited, the first insurance company was established in 1947AD. There are many reasons for that. One of the main reasons is we Nepali still don’t understand the actual meaning of insurance. Insurance procedures can be very confusing and it’s hard to know what type of insurance you really need or want. But the more you try to comprehend the insurance, the more you will realize how vital it is for a sound financial plan.
Life insurance is one of the cheapest types of insurance. Simply, you pay a premium for a period of time(typically between 10 to 30 years), and if you die during that time a cash benefit is paid to your family beneficiaries. Insurance proceeds are a useful source of money to pay the deceased’s debts, loans, and income or estate taxes, or any kind of burden.
If you don’t die during the term, the policy terminates at the end of the term. Term policies are a great choice if you are concerned about your family having to cover large debts if you die unexpectedly. A major benefit of this type of policy is that the premium money returned to you is completely tax-free, as it is not considered income but simply a refund of premiums.
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Procedure of Life Insurance
- Fill up the application process
This is the first step where you need to fill-up the form. There are going to a few numbers of pages and some terms in that form can seem a bit hectic. So you can take help from the clerk working there to understand the term and fill the form correctly. Before filling the form always try to understand the type of life insurance you are choosing and the plans and the policy regarding that type.
- Choose a term length
Then, you need to choose a term length. It means you have to specify a period of time of your life insurance. The periods can vary depending upon your age as well. The periods can be of 10 years, 15 years, and 20 years depending upon the company’s policy. If you die during that time period, a cash benefit is paid to your family. If you don’t die during the term, the policy terminates at the end of the term.
- Decide death benefit you want
Now the next step is to determine the benefits your family (or anyone else you name as your beneficiary) will get in case of your death within the specified time. The benefits depend upon the payment you make and also the period of time of your life insurance.
- Name your beneficiaries
This is the last step where you select the people who will get the benefits in case of your death. You can choose more than one person and they can be your family members, your relatives or friends, your offsprings. The people who you choose to get benefits are called beneficiaries.
Importance of Life Insurance
So coming back to the question of why does one needs life insurance, there are a lot of benefits of getting life insurance. Some of them include:
- People depending upon your income:
If you are the head of your family then your family members may be dependent upon you to fulfill their needs and in case of your untimely death, they will be left helpless and it will be hard for them to sustain as they will have no source of income. So if you have life insurance, then they can at least get the benefits and built up their life to live independently.
- For Business needs:
If one of your important employees dies a sudden death, then it can impact your business and cause huge loss and you might even have to shut down due to the lack of resources. So if your key employees have life insurance then you can receive the benefits and sustain the business in case of their untimely death.
- Leave an inheritance:
In case of your sudden death, if you have life insurance, its benefits will be provided to your beneficiaries who can be your family members or relatives, or even friends. So it will be like leaving an inheritance for your loved ones so that they can have some source to move upward in their life.
- Pay off debt, loans, and other expenses:
You might have taken some amount of loan or debt from a bank, other financial institutions, or even from your friends and relatives. If you have life insurance then the loan can be paid by your beneficiaries in case of your untimely death. Or if the period gets expired you will get a lump sum amount which you can use to be debt-free.
- To reduce uncertainty and risk in life
Life is full of uncertainty and risk. No one can predict what happens to us even just 5 seconds later. So, all we can do is make some plan to minimize those risks and handle the uncertainties. And of those ways to handle uncertainties is having life insurance. Having life insurance can help during untimely deaths to manage your family’s life.
- Help to achieve long term goals:
The earlier you get life insurance the cheaper it is. So having life insurance at a young age can help you get a lump sum amount in your thirties or forties after the period has expired, which is the perfect time to get the benefits to fulfill your long-term goals. It can also help in your retirement and can be considered a lucrative investment tool.
- The sooner the better:
At a young age, you are healthy and are unlikely to get any kind of health condition. So it’s easy and cheaper to get life insurance and a very low cost. But as you get older you will it’s hard to get life insurance as you have certain health conditions and the cost of life insurance also gets expensive. So the sooner you get the life insurance the easier it is to get the benefits after the expiry time.
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