Insurance Policies Pros and Cons

 

The insurance industry has experienced rapid expansion ever since private businesses were permitted to solicit insurance policies. After COVID-19 waves more people becoming aware of its significance, the insurance sector has a bright future. More people are now buying insurance for protection of family and themselves against any financial loss due to any crisis.

Financial experts frequently reiterate that an insurance policy is not an investment. Many people, however, are unable to grasp this idea and continue to use it as an investment tool in order to build sizable corpuses. If that was the intention, it could be utterly disappointing because insurance requires a different approach. People generally buy ULIP plans clubbing insurance along with returns. However, insurance should always be different from investments.

Similar to how a coin has two sides, an insurance policy also has benefits and drawbacks. Knowing both will give you a clear understanding of how to make use of an insurance policy for your advantage.

Benefits of Insurance Plans

Here are a few benefits of purchasing an insurance policy:-

 

i.                     Ideal protection for your family after you pass away and provide financial support during any medical emergency:

No one is aware of what will occur next because the future cannot be predicted. Your top priority might be to shield your family from an unforeseen potential danger. When an insured person is unable to provide financial assistance to family after his/her death, an insurance policy may be able to help. Insurance also supports insurance holders' families in case of any undue medical emergency.

ii.                   Benefit of compensation:

An insurance policy covers the monetary loss brought on by the hazard. If the unfortunate event occurs before the tenure is up, you can easily file a claim for the financial loss covered by the insurance. It reduces a lot of your mental stress and agony caused by the peril. In case of life insurance, the family of the insurance holder gets financial cover after the policyholder’s death.

iii.                 Tax Benefits:

Irrespective of the insurance plan you buy, you can claim tax benefits up to 1.5 lakhs under section 80C and 80D as per Income Tax Act 1961.

iv.                 Financial support post retirement:

There are special insurance plans that are tailor-made to support after your retirement. It makes you financially healthy after when you would not be able to earn money at old age. Moreover, buying insurance at a young age becomes cheaper in the long run.

v.                   For specific purposes:

An insurance is earmarked for specific goals unlike other financial instruments. This helps you utilize the funds for the purpose you had initially opted.

vi.                 For smooth business operation:

Even when you meet with unexpected loss in the business, insurance can help you manage the loss. An insurance policy taken for your employee becomes a motivating factor at the workplace and helps in smooth business operation.

Disadvantages of Insurance Policies

i.                     Tricky terms and conditions:

While taking an insurance policy, some of the terms and conditions could be tricky that you may not get compensation for all the losses. It is important to read through the conditions before buying it.

                     ii.                   Lengthy legal formalities:

Though you may have opted for a good plan, claiming the insurance money could take a long time due to its lengthy legal procedures to be carried out by the company.

iii.                 Potential crime incidents:

Life insurance policies could lead to potential crime incidents as the beneficiaries of the policy might get tempted to resort to wrong ways to obtain the insured amount.

iv.                 Hospitals taking unnecessary advantages:-

Now when you are planning to visit a hospital for certain treatment then hospitals always try to admit you considering your policy and they will try to keep patients in hospital as long as possible to get maximum from the policies.

Conclusion

While every financial instrument will have both advantages and disadvantages, it is recommended to choose wisely based on your need and purpose. You can benefit from an insurance policy provided if the goals are clearly realised.