Insurance can be termed as providing a financial coverage
against uncertain or contingent events or conditions.
Individual liabilities can be mostly from in the form of
loan which may have been taken from Banks or Financial Institution for the
purchase of an asset. Loan could have also been taken for other purposes too.
Generally, an Individual takes a loan to purchase a house
for self and family. It is a dream of an individual to own a house.
Let us understand the importance of Insurance by taking the
example of home loan.
In case of home loan, the lender provides the loan to the
loan for only upto 80% of the value of the said property. By doing so it
reduces the risk of default as the balance 20% is required to be paid by the
borrower himself.
Every Moth Instalment (EMI) is calculated in such a way that
the amount of does not cross the 50% of total salary or earning of the borrower
which is being earned in a moth. This would help the borrower to pay his EMI
without holding back his day to day expenses and it also reduces the risk of
default.
To further reduce the risk of defaulting or non-payment of
the loan amount, it is suggested that the borrower takes an insurance plan to
cover such risk. Following plans can be taken up by the borrower to secure the
future of the family so that the burden of the loan doesn’t fall on the family.
- Term Insurance: This insurance plan safeguards the insurer/ beneficiary for a pre-defined term where in case of death of the insurer during the tenure of the policy, the nominee (who is generally a family member) gets the policy amount as per the terms chosen at the time of issuance of such policy. Term policy is one of the most basic policy which provides the life cover at a low cost for a pre-defined term. Generally, all the financial planners recommend to have such policy.
- Critical Illness Plan (CI): This insurance plan, provides cover when the insurer has lost the earning capacity due to any life-threatening disease such as cancer, paralysis etc. In order to ensure that such in capacity to earn does not affect his capability to repay the loan taken, the CI plan could serve the said purpose and pay the insurer as per the terms decided at the time of issuance of such policy.
Thank You
Regards
Author- Gaurav Sureka
Kautilya
IBS Mumbai
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