System of life insurance
Life insurance is a very useful method to provide for one’s own old age, or for one’s family in case of premature death. It is wise for every one to insure his life’ but it is certainly the duty of a married man who depends upon his daily work for his income. For if anything happens to him before he has been able to save enough to keep his family in comfort, those he loves best in the world may be left to starve.
How does the system of life insurance works ? an insurance company, in return for certain monthly or yearly payments (called premiums) for a certain number of years, undertakes to pay you, at the end of the period fixed, a certain agreed upon sum of money, or to pay the same amount of your wife or family on your death, if that occurs before the term is up. For example a young man of thirty years of age, can insure his life for Rs.100,000 to be paid to him when he is sixty years old, or to his family if he dies before he reaches that age.
The bargain between him and the company looks, at first sight, something like a bet; for the length of his life and the date of his death are quite unknown. If he lives to be sixty, the company gains because Rs.100,000 and the company will in the meantime have made a profit on the money by investing it. On the other hand, if he dies soon after he has taken out the policy, the company loses, for it has to pay his family Rs.100,000, while it has received only a few years “premiums”, perhaps only a few thousand rupees.
This being so, how can an insurance company carry on its business and make a profit? because insurance business is based upon very careful mathematical calculations of the average expectation of life at any given age. Of course, no one knows how long any particular man will live or when he will die; but carefully collected statistics, do show what percentage of the population dies every year, and how long on the average, people of any particular age are likely to live. In this way a fairly safe average can be stuck and the premiums to be paid in, and the policies to be paid out, can be so balanced over a period of years that the company can make a profit, and yet be able to meet all claims as they arise.
By Rehana khan(111/10)
