Protection need from Life insurance

protection needs arise when unpredictable events occur that can potentially result in financial disaster for individuals and/or their dependents. We also saw that protection against unpredictable events is provided by insurances that aim to replace much of the monetary loss produced by the occurrence of the insured event.

Even if a person knows that they would benefit from some form of insurance protection, they don’t always have a real understanding of what their individual protection needs really are.

It is the role of agents to help such people to make the right choices.

In this chapter we will learn about the features and uses of various life insurance plans available in the market and – importantly – which features affect their suitability for a client. In chapters 6 and 7 we shall turn our attention to the savings needs of individuals and the range of savings products that are available to meet those needs, and also the other financial products that agents need to understand, such as health insurance.

This understanding will enable you to advise your clients to take out the right type and level of insurance cover for their individual needs and circumstances.


Protection needs
As a life insurance agent you are concerned about the protection needs that arise as a result of a person’s death or disability.


General protection needs of an individual
There are various reasons for which a person needs financial protection in the form of insurance. These needs are as follows:

Income
There is a strong need for an individual to protect the income that they are currently earning and expect to earn the future. We saw in the above case study how an untimely death combined with no income protection can lead to a family landing in a financial mess. Term insurance can help to protect the future loss of income.

Medical needs
Medical emergencies strike when they are least expected. We saw in the above case study that Prashant’s parents are retired and are dependent on him. If ill health strikes in old age, treatment costs can burn a big hole in the pocket of a family’s income provider. Medical insurance can help protect against unexpected medical emergencies.

Dependants 

• Children’s education: these days with so many children wanting to go for the same MBA/engineering/medical course and a limited number of good institutions offering quality education, the cost of education is rising at a rapid pace. As a result, parents need to plan well in advance for their child’s education. In the above case study we saw how the untimely death of a parent can ruin the education plans of their child. Therefore, there is a need to protect the child’s education fund. A child insurance plan (which we shall study in more detail in the next chapter) can help to address this issue in the absence of the parent.
• Children’s marriage: parents will do everything it takes to provide the best quality of everything their child needs. Parents dream that their only daughter’s wedding should be the best in town and should be the most talked about event for every guest. To fulfil their dream, parents will start investing for their child’s wedding right from the beginning of the child’s life. But the premature death of a parent can result in the wedding plan dreams going sour; hence the need for protection. A child insurance plan can help provide protection against the untimely death of the parent. 

Assets and liabilities
Assets such as our house, car or business are very important to us. 

In building these assets – due to the huge initial investment involved – we have to apply for loans to finance them. It is the responsibility of the person who provides the family’s income to make sure these loans are repaid on time. But if the income provider dies prematurely who will take care of these loans? We saw in the above case study how Prashant’s family lost their car and house as they were not able to repay the EMIs in Prashant’s absence. Hence there is a need for protection of these assets (loans) in the absence of the main provider of income. Home insurance or additional term insurance can provide protection in this case. Additional term insurance can provide protection against the credit card dues, personal loans, car loan and any other loans in case of the untimely death of the income provider. 

Family’s maintenance
There is a need to protect the family in the absence of the income provider. We saw in the case study that after Prashant’s death the family’s survival is at stake. If there is only one income provider then the insured should make sure that they have enough life insurance to take care of their family in the case of an early death. Here a term insurance plan can provide a lump sum amount to the family, or a pension plan can provide regular income.



Anand Khemka
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