In an exciting collaboration between Minet Malawi, Britam, and The Daily Times - Malawi's leading newspaper - we are thrilled to introduce a groundbreaking initiative that will redefine your Wednesdays. Welcome to the Insurance Insights Column – a weekly rendezvous with the world of insurance and contemporary issues that matter. Every article aims to illuminate the intricate landscape of insurance products and relevant topics that impact us all. The articles will be educative at all levels, catering to both practitioners and non-practitioners.
As published in The Daily Times (Malawi) on January 31st, 2024
Welfare economics teaches us that the true wealth of a nation lies not in its natural resources or its accumulated property but in inherent capabilities of its population and the way in which the population is employed.
There are two certainties of life - tax and death. We all pay ‘Caesar’ what is due to him either directly or indirectly through our economic transactions and undertakings. And no human is immortal. We shall all die.
Then, why do insurers provide insurance for an event that will certainly happen?
The principle tenet of insurance is that occurrence of an event leading to loss or damage should be accidental as far as the insured party is concerned. In general insurance, the principle is undemanding. Does this also hold in life insurance? No, it doesn’t. The insured event – death - is certainly going to happen to the insured person. The rationale is that it is not death that is being insured but its – death’s - timing. Agreed. No one knows the day he or she will die. The fact that there is an element of ignorance or unfamiliarity in the timing of one’s death, makes one’s life insurable or a subject matter of insurance.
Secondly, why should your life be insured?
We should know that our life has distinctive economic value to all that depend on its earning capacity especially our family and employer. At a household level, the economic value of human life is easily measured by the value of the earning power of each family member. It is common, especially during growing season, to see minors of school-going age doing piecework in gardens and farms. Reason? To create earning capacity.
To an employer, the economic value of human life is measured by contributions that an employee makes to the success of the enterprise. Similar to household setups, the worker’s contribution is measured by his earning capacity. The more an employee contributes, the more he earns in Kwacha terms, ceteris paribus.
Insurers recognize four main perils that can obliterate - wholly or partially - the economic value of an employee’s and any person’s life. The perils include premature death, loss of health, old age and unemployment. Purchase of life insurance policy does not stop the perils from operating. Life insurance is a facility through which the hardship consequent of the above-mentioned perils is made better.
The same principle as in general insurance - life insurance is simply a method by which a number of people come together to reduce losses resulting from premature death, loss of health, old age and unemployment. A life insurer creates a common pool from the premiums that members pay and re-distributes benefits to the estates of the members who die. Put it directly, life insurance is a method of creating an estate. However, the guiding law remains the same that the losses - deaths, old age and other perils – that occur to the few are met by the contributions – premiums – of the many.
An estate is defined as property belonging to the deceased. Insurers recognize two types of estates, viz, present and future estates. Present estate refers to all property that the deceased may have actually accumulated when he was alive. Future estate, on the other hand, refers to one’s economic potential of amassing wealth in future given one’s current status. Clearly, the occurrence of premature death means that the potential estate is never realized.
Life insurance, thus, bridges the economic gap that exists between the present and future estate for our dependents’ benefits. Life insurance is converted into an actual estate after the insured person’s death. There is guarantee of payment upon death. This is the reason that life insurance is sometimes referred to as life assurance – implying that dependents, known as legal representatives, are assured of being paid the sum insured in the event of death of the insured life.
Comments
Post a Comment