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L11

The document discusses the significance of life insurance and pre-need plans, outlining their functions and types. It emphasizes the importance of insurance in providing financial security against unforeseen events and compares various life insurance options, including term, endowment, whole life, and variable unit-linked policies. Additionally, it defines pre-need plans as agreements for future services or benefits in exchange for payments, highlighting their role in planning for future needs.

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Johnroe Mañosa
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12 views6 pages

L11

The document discusses the significance of life insurance and pre-need plans, outlining their functions and types. It emphasizes the importance of insurance in providing financial security against unforeseen events and compares various life insurance options, including term, endowment, whole life, and variable unit-linked policies. Additionally, it defines pre-need plans as agreements for future services or benefits in exchange for payments, highlighting their role in planning for future needs.

Uploaded by

Johnroe Mañosa
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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Lesson 11

LIFE INSURANCE AND PRE-NEED PLANS

INTRODUCTION

The discussion will include the importance and functions of insurance. The purpose and
types of life insurance will also be covered together with health insurance and pre-need
plans.

LEARNING OBJECTIVES

1. Recognize the importance of life insurance


2. Compare various types of life insurance
3. Compare insurance with pre-need plans
LECTURE DISCUSSION

INSURANCE

There is no denying that one will have greater peace of mind if he knows that he and his
loved ones are financially secure from various unforeseen situations such as an
unfortunate death or a medical emergency. These situations also include an accident or
damage to vehicle, property etc.

Bearing the financial impact of these situations can be really costly and may eat into one’s
savings or his family’s hard-earned money. Thus, there is a pressing need of insurance
for him and his family for proper coverage and financial support against all risks linked to
his life, health and property.

An insurance policy is a contract between an institution or insurer and a policyholder


where the policyholder agrees to pay a set amount at specific times while the institution
or insurer guarantees monetary benefit upon the passing of an event as stipulated in the
contract.

NEED FOR INSURANCE

Insurance plans are beneficial to anyone looking to protect their family, assets/property
and themselves from financial risk/losses:

 Insurance plans will help to pay for medical emergencies, hospitalization,


contraction of any illnesses and treatment, and medical care required in the future.
 The financial loss to the family due to unfortunate death of the sole earner can be
covered by insurance plans. The family can also repay any debts like home loans
or other debts which the person insured may have incurred in his/her lifetime.
 Insurance plans will help the family maintain their standard of living in case the
insured is not around in the future. This will help them cover costs of running the
household through the insurance lump sum payout. The insurance money will give
the family some much needed breathing space along with coverage for all
expenditure in case of death/accident/medical emergency of the policy holder.
 Insurance plans will help in protecting the future of the insured’s child in terms of
his/her education. They will make sure that his children are financially secured
while pursuing their dreams and ambitions without any compromises, even when
he is not around.
 Many insurance plans come with savings and investment schemes along with
regular coverage. These help in building wealth/savings for the future through
regular investments. Just pay premiums regularly and a portion of the same goes
towards life coverage while the other portion goes towards either a savings plan
or investment plan, whichever one chooses based on his future goals and needs.
 Insurance helps protect the home in the event of any unforeseen calamity or
damage. The home insurance plan will help get coverage for damages to the home
and pay for the cost of repairs or rebuilding, whichever is needed. If there is
coverage for valuables and items inside the house, then replacement items can be
purchased with the insurance money.

FUNCTIONS OF INSURANCE

The most important function of insurance is to spread the risk over a number of persons
who are insured against the risk, share the loss of each member of the society on the
basis of the probability of loss to their risk and provide security against losses to the
insured.

Insurance provides certainty


Insurance provides certainty of payment at the uncertainty of loss. The uncertainty of loss
can be reduced by better planning and administration. But the insurance relieves the
person from such a difficult task. Moreover, if the subject matters are not adequate, the
self-provision may prove costlier. There are different types of uncertainty in a risk. The
risk will occur or not, when will it occur, how much loss will be there? In other words, there
is the uncertainty of happening of time and amount of loss. Insurance removes all these
uncertainties and the assured is given certainty of payment of loss. The insurer charges
the premium for providing the said certainty.
Insurance provides protection
The main function of insurance is to protect the probable chances of loss. The time and
amount of loss are uncertain and at the happening of risk, the person will suffer the loss
in the absence of insurance. The insurance guarantees the payment of loss and thus
protects the assured from sufferings. The insurance cannot check the happening of risk
but can provide for losses at the happening of the risk.

Risk-Sharing
The risk is uncertain, and therefore, the loss arising from the risk is also uncertain. When
risk takes place, the loss is shared by all the persons who are exposed to the risk.

It Provides Capital
The insurance provides capital to society. The accumulated funds are invested in the
productive channel. The death of the capital of the society is minimized to a greater extent
with the help of investment in insurance. The industry, the business, and the individual
are benefited by the investment and loans of the insurers.

It Improves Efficiency
Insurance eliminates worries and miseries of losses at death and destruction of property.
The carefree person can devote his body and soul together for better achievement, it
improves not only his efficiency but the efficiencies of the masses are also advanced.

It helps Economic Progress


The insurance by protecting the society from huge losses of damage, destruction, and
death, provides an initiative to work hard for the betterment of the masses. The next factor
of economic progress, the capital, is also immensely provided by the masses. The
property, the valuable assets, the man, the machine and the society cannot lose much at
the disaster.

LIFE INSURANCE

The purpose of life insurance is to provide financial protection to surviving dependents


after the death of an insured. It is essential for applicants to analyze their financial
situation and determine the standard of living needed for their surviving dependents
before purchasing a life insurance policy. Life insurance agents or brokers are
instrumental in assessing needs and establishing the type of life insurance most suitable
to address those needs.

TYPES OF LIFE INSURANCE

 Term
This is the most straightforward type of life insurance where the beneficiaries will
receive a lump sum amount if the insured passes away during the term coverage.
It has low premiums and the policy is easy to understand. However, there are no
benefits for the policyholder if they outlive the term coverage.

 Endowment
This type of life insurance policy awards a lump sum to the policyholder after a
particular time or upon death. The insured will pay the premiums for a lock-in period
or until they reach a specific age. Premiums are higher for this type, but the policy
owner is granted returns upon its maturity.

 Whole Life
As the name suggests, whole life insurance covers the insured for their entire life
or until they reach 100 years old. It also acts as a savings vehicle since a portion
of the premiums will be allocated for cash funds. While premiums are higher and
prices are fixed, payment terms are more flexible.

 Variable Unit-Linked (VUL) – This is a popular type of insurance policy that


combines life coverage and investment opportunities. Many prefer this simply
because it has benefits for the insured while they are alive. Investment fees are
paid for on top of the insurance premiums, and the death benefit and cash funds
will depend on the performance of the investment.
When selecting insurance coverage, make sure to thoroughly compare and understand
the policy. Look into the nitty-gritty details like the estimates of the premiums, charges
and fees, the validity of the contract, etc.

PRE-NEED PLANS

Pre-need plans" are contracts, agreements, deeds or plans for the benefit of the plan
holders which provide for the performance of future service/s, payment of monetary
considerations or delivery of other benefits at the time of actual need or agreed maturity
date, as specified therein, in exchange for cash or installment amounts with or without
interest or insurance coverage and includes life, pension, education, interment and other
plans

Life Insurance Pre-Need Plans

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