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

These are:

Mortality risks

Longevity risks

Disability risks

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.

Ebenezer Odartey Lamptey

I was born in the Eastern part of Ghana called Koforidua. I'm 43 years old and married to a beautiful wife (Eunice). I was brought up by my mother alone when our family was broke down by my Mom's best friend who turned out to be my Daddy's second wife. Life was difficult where my mum had to do other menial jobs to feed me after she was fired from work for taking me with her to work. What my mum knew was to educate me to get good grades and get the best paying job which she thought was becoming a medical doctor. finally, I ended up in the insurance industry and working for almost a decade. I enjoyed one moment in life when my mother visited me in the western part of the country while on leave. we had the best time when I picked her on my back to show how I wished we are together and my kids pulling her clothes to come down for their turn, ( Grand Maaa, Grand Maaa, it's my turn to be picked by Daddy); Unfortunately, she had a mild paralysis when her Blood Pressure raised and there was no one with her that night when she left my place to her lonely apartment. She died after six months while bedridden. I felt I have enough time for my family afterward. It never happened since I was enslaved to work from 9 to 5. I was not able to move from my comfort zone for my passion which will give me time for my family. Today, I have found what makes me happier and have more time for the people that I care for. My family time together for a silly walk and talk, questions my kids ask which take them to where they want to be in the next 100 years today. They are adults in their own world and their mind is like a lump of wet clay that whatever I print on it will stack which is the best time to give them the best they need from their mentor. I now know my wife also has a passion too.

This Post Has 2 Comments

  1. Judy

    How important is life insurance when you are rich?

    1. Adeoye Falade

      When you are rich, you build wealth with the objective of leaving inheritance for your children. In most countries, that inheritance is subject to inheritance tax or estate tax. Inheritance tax is a major source of income for governments in Europe and America. The tax is payable within a specified time after the death of the one who built the wealth.
      The challenge facing the beneficiaries is how to source the fund. This is where life insurance becomes relevant. You will get how life insurance solves the problem in one of my posts next week.
      Adeoye Falade

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