Financial goals: Life insurance aims to replace lost income

There are two types of financial goals in life — insurance and investment goals. Certain goals can be better realised through insurance. All sensitive goals of life fall under this category. The risk of dying prematurely, leaving behind dependents with no or little stable income is one such risk. The risk of becoming physically or mentally incapacitated resulting in loss of earning capacity is another risk which can affect the standard of living of a family, education and marriage of children and more.

These financial risks can be managed by various life insurance/annuity products. A judicious mix of term, endowment/whole-life and annuity policies can meet the most sensitive goals of life.

Investment goals, on the other hand, can vary from individual to individual. It can be buying a luxurious house at a prime location or buying a premium segment car or going for a vacation abroad. There is nothing wrong in dreaming big. People have started to believe that by investing in areas which promise high returns, it is possible to fulfil some dreams of life. They are willing to take risks for the possibility of earning high returns.

Insurance goals
The problems start when one tries to achieve even insurance goals with the help of investment products. When the objective is to reach insurance goals, an individual cannot afford to take chances. If one wishes to achieve investment goals with the help of insurance products, he will not be successful as insurance goals can never be compromised.

Though there is a common perception that life insurance policy is profitable only in the event of death, it is the result of inappropriate positioning of life insurance in the financial market by the insurers. For the better understanding of the insuring public, we can say that no one makes a windfall when someone dies. Life insurance is a mechanism to arrange replacement of lost income.

It is designed to give the family some money which enables it to reach the insurance goals of the deceased life assured. Again, if the life assured is alive on the date of maturity, he has not incurred any loss. For one, he has got back the sum assured either in lump sum or in instalments along with a bonus which is pretty decent. Secondly, he has enjoyed the risk cover for a long period which must have given him reasonable peace of mind.

The insuring public needs to understand the value of this peace which life insurance products alone can generate in the world. In India, insurance goals are sometimes undermined and disproportionately larger emphasis is given on investment goals. We have to value attainment of insurance goals if we want to live and work with peace and dignity.

The writer is an insurance industry analyst