Life insurance encourage saving —
Life insurance is a long-term financial instrument that works as a financial backbone to fulfil your family members’ financial needs at important milestones even in your absence. The elements of protection and investment are present only in case of life insurance. In property insurance, only protection element exists. In most of the life policies, elements of saving predominate. These policies combine the programs of insurance and savings. The saving with insurance has certain extra advantages –
(i) Systematic saving is possible because regular premiums are required to be compulsorily paid. The saving with a bank is voluntary and one can easily omit a month or two and then abandon the program entirely.
(ii) In insurance, the deposited premium cannot be withdrawn easily before the expiry of the term of the policy. As a contrast to this, the saving which can be withdrawn at any moment will finish within no time.
(iii) The insurance will pay the policy-money irrespective of the premium deposited while in case of bank-deposit, only the deposited amount along with the interest is paid. The insurance, thus, provides the wished amount of insurance and the bank provides only the deposited amount.
(iv) The compulsion or force to premium in insurance is so high that if the policyholder fails to pay premiums within the days of grace, he subjects his policy to causation and may get back only a very nominal portion of the total premiums paid on the policy. For the preservation of the policy, he has to try his level best to pay the premium. After a certain period, it would be a part of the necessary expenditure of the insured. In absence of such forceful compulsion elsewhere, life insurance is the best media of saving.
