You often find many advertisements for insurance telling you about its many benefits. However few people are aware of actual purpose of insurance and many people fall in the sales trap of insurance agents. They end up buying wrong insurance policies. Well, here is in brief the real purpose of insurance.
Insurance is basically meant to cover a risk against an uncertainty. For example, you are the earning member of the family. If you die suddenly due to some reason, then your family will have no money to live on. Here is where insurance comes in. If you buy insurance for your life, then in case of your death, your family will be given monetary compensation as per your policy coverage. There are basically 2 types of plans: Term Plan and Endowment Plan.
In term plan, insurance premium is less and insurance coverage is big. But the insurance premium money is an expenditure. You just get tax exemption related benefits for the premium paid. That’s all.
In endowment plan, premium is higher and insurance coverage is less. But you get money back along with some extra amount as per the policy chosen. You also get get tax exemption related benefits for the premium paid.
So seemingly endowment plan looks attractive to you. But in reality, it defeats the very purpose of insurance. Never buy insurance for making money or investing money. Buy insurance only to cover risk.
Insurance is done for coverage of death, illness, accident, disability, travel, car, property. It is applicable in personal and business fields. So beware if an insurance agent tries to sell you a policy. Be very clear why you are purchasing the insurance policy and take the right decision.