Ques 6- “Insurance is a means of protection against financial loss”.

Do you
agree with the given statement? Justify your answer. Briefly explain
different types of insurance schemes one can consider to protect himself from
future contingencies.

Ans 6- Insurance is a means of protection against financial loss. It may not be exactly possible
to replace the loss of an asset but insurance provides financial support to replace the lost
asset. What is Insurance - the company (insurer) provides insurance to the insured
(policyholder) to compensate in the event of occurrence of loss, in exchange for payment of
a small amount, by insured, called premium. The premium payment is usually annual,
however, the frequency may change depending on the terms of the policy.

We have broadly categorized insurance into two – Life and General

In today’s world, we have two major risk in our life:

1. Risk of living too short

The above two risks are very critical in life and needs to be consciously addressed by every
individual. Whilst the first risk can be covered through Insurance contract, the second can be
insured through proper investments throughout our life.

If you are a key earning member in the family and the family is solely dependent on you for
their livelihood then it becomes all the more important to insure your life. We suggest life
insurance cover which is approximately 12-15 times of your annual income. The underlying
logic behind this multiple is that in case of loss of life, the amount received by your family
from insurance company can be parked in fixed deposits which can fetch interest almost
equivalent to your present monthly income. While loss of your life is irreplaceable, but the
cover ensures that your family is not financially deprived-of due to your absence.

The insurance cover once taken has to be reviewed periodically. As your income increases,
cover also has to increase. We suggest to review this cover every 5 years. Add-on insurance
cover can be taken to maintain 12-15 multiple on enhanced income.

The basic version of Insurance is called a Term Plan which only provides death cover with no
life benefit. Following are different types of policy:
4 Types Of Insurance Everyone Needs

Life Insurance
The greatest benefits of life insurance include the ability to cover your funeral expenses
and provide for those you leave behind. This is especially important if you have a
family that is dependent on your salary to pay the bills. Industry experts suggest a life
insurance policy that covers 10 times your yearly income.1 But that's a number not
everyone can afford.

When estimating the amount of life insurance coverage you need, remember to factor in
not only funeral expenses, but also daily living expenses. These may
include mortgage payments, outstanding loans, credit card debt, taxes, child care, and
future college costs.
According to a 2018 study by LIMRA, formerly known as the Life Insurance and Market
Research Association, one in three families might not be able to meet their day-to-day
expenses within a month of the primary breadwinner's death. 2

The two basic types of life insurance are traditional whole life and term life. Simply
explained, whole life can be used as an income tool as well as an insurance instrument. As
long as you continue to pay the monthly premiums, whole life covers you until you die.

Term life, on the other hand, is a policy that covers you for a set amount of time. There are
other considerable differences between the two types of insurance, so you may want to
seek the advice of a financial expert before you decide which is best for you. Factors to
consider include your age, occupation, and number of dependent children.

Health Insurance
Statistically, you and your family are just one serious illness away from bankruptcy,
according to a study published by the American Journal of Public Health in 2019. In the
Journal's survey of more than 900 Americans who filed for personal bankruptcy between
2013 and 2016, medical problems—from bills, income loss due to illness, or both—
contributed to two out of three bankruptcies.3

Those numbers alone should incentivize you to obtain health insurance or review and
possibly increase your current coverage. But with rising co-payments, increased
deductibles, and dropped coverages, health insurance has become a luxury fewer and
fewer people can afford. When you consider that the national average cost for one day in
the hospital was $2,517 in 2018,4 even a minimal policy is better than none.

The best and least expensive option may be participating in your employer's insurance
program, but many smaller businesses do not offer this benefit. The average annual
premium cost to the employee in an employer-sponsored health care program was $7,188
for single coverage and $20,576 for a family plan in 2019, according to research published
by the Kaiser Family Foundation.5

If you don't have health insurance through an employer, check with trade organizations or
associations about possible group health coverage. If that's not an option, you'll need
to buy private health insurance.

Long-Term Disability Coverage

Often, even those workers who have great health insurance, a nice nest egg, and a good
life insurance policy don't prepare for the day when they might not be able to work for
weeks, months, or ever again. While health insurance pays for hospitalization and medical
bills, you're still left with those daily expenses that your paycheck generally covers.

Auto Insurance
There were 6.7 million car accidents in the U.S. in 2018, according to the National Highway
Traffic Safety Administration.1 0 An estimated 38,800 people died in car crashes in 2019
alone.1 1 The number one cause of death for Americans between the ages of five and 24
was auto accidents, according to 2018 CDC data.1 2 Over 2.7 million drivers and passengers
were injured in 2018.1 0 The 2010 economic costs of auto accidents, including deaths and
disabling injuries, were around $242 billion.1 3

While not all states require drivers to have auto insurance, most do have regulations
regarding financial responsibility in the event of an accident. States that do require
insurance conduct periodic random checks of drivers for proof of insurance. If you do not
have coverage, the fines can vary by state and can range from the suspension of your
license, to points on your driving record, to fines from $500 to $1,000.

If you drive without auto insurance and have an accident, fines will probably be the least of
your financial burden. If you, a passenger, or the other driver is injured in the accident,
auto insurance will cover the expenses and help guard you against any litigation that might
result from the accident. Auto insurance also protects your vehicle against theft, vandalism
or a natural disaster, such as a hurricane or other weather-related incidents.