WHY LIFE INSURANCE DEVELOPED
Last week life and income protection insurance and the difference between term and whole life insurance were explained. Today it has become necessary to discuss with you how Life Insurance comes about so that we can build on a solid foundation.
Life insurance started in response to the need of individuals to protect their families and businesses against human life risk which affect them financially.
There are human life risks that trigger financial losses when they occur
The mortality risk is the risk that a person will die prematurely and when this happens it brings financial burden on the dependents who rely on that breadwinner. Mortality for every human being is the probability of dying at a given age.
As a result, there is the need for the breadwinner to transfer that perceived risk to an insurer by buying a life insurance policy which will be explained later.
Longevity Risks are associated with living too long after a normal active working period in life depending on the geographical location of an individual. As age increases with time life risks also increase. All thing being equal, the older one is, the chances of dying but not outstanding, accident or sickness can trigger death.
It becomes difficult for the aged to normally generate income which affects their livelihood. In this situation, the risk of living too long becomes imminent.
Disability Risks are risks of becoming disabled and unable to work due to illness or injury sustained in an accident. The individual losses the source of income which helps them cope with life with their families.
Life insurance brings benefits in the form of;
Sum Assured or value the insurer placed on the life of the insured at initial stage of the policy. It is payable on death or survival of an individual for life insurance protection.
An agreed percentage or the pre-disability income of a disable person, payable during disability period for disability income protection.
An agreed lump sum is payabele when the insured person is diagnosed with critical illness or dread disease in respect of disability income protection.
Regular periodic income is paid as a life annuity when a person retires. It is payable throughout the lifetime of the individual for annuity protection.
Life insurance has its purpose the financial protection of the individual, dependents, businesses, and estate of individuals against the financial loss that the dependents, businesses, and estates will suffer when an event occurs to the individuals due to any of the human life risks.
Life insurance prevent financial losses from loss of income that deceased persons could have earned and used to take care of their dependents day to day needs
Premature death of an individuals also brings loss of funds to educate the children to the highest point to make them productive to survive the trends of life.
An immediate financial need incurred in burying the diseased person by the survivors and other outstanding bills cannot be left out.
Employers incur financial loss in paying death in service benefit to employee who die while in active service.
When an individual become disabled, the loss income which could have earned if they have not been disabled.
When a key person dies or becomes disabled an organization loses profit. The cost of training and replacement brings financial loss to the organization which in the long run reduces the profit.