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What is the Importance of Life Insurance?

Securing your future and your family's well-being is a top priority, and it can be made easier with the right financial products. Life insurance is a valuable means to address multiple objectives within a single policy. With various life insurance options available, your objective is to identify the plans that best match your family's and yourself's needs. When the time comes, your insurance policy will provide the necessary protection comprehensively! 

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Read on to learn more about the need and importance of life insurance:

What Is Life Insurance?

Life insurance is a contract between an insurance company and a policyholder, where the insurer promises to pay a fixed amount of money after a set time or upon the policyholder's death in exchange for premiums. Life insurance ensures that the policyholder and his family/loved ones are secured in the long-run or after the policyholder’s unforeseen demise.

There are two types of life insurance policies:

  • Pure Protection Plan/Term Insurance: A pure protection plan, also known as Term Insurance, provides a lump sum payment (called death benefit) to the family/loved ones in case of the policyholder's unfortunate death, ensuring the family’s future security.

  • Savings Plan: A financial product that helps plan long-term goals, such as buying a home or funding higher education, while also providing life coverage benefits It ensures future returns once you survive/outlive the plan.

one crore term plan

Term Plans


Life Cover

@ Starting from ₹ 16/day+


Life Cover

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Life Cover

@ Starting from ₹ 12/day+

Why Do You Need Life Insurance?

As we have understood the importance of life insurance, now let’s understand the need of life insurance:

  • Secure the Financial Future of Your Family: Life insurance plans secure you and your family members financially. Every parent wants their kids to be taken care of even in case of their absence. Life insurance ensures your dear ones won’t suffer financially when you are not around. This way, you can understand the importance of life insurance as it can help you protect your family during your unfortunate death.

  • Complete your Financial Goals: Each of us has life goals that require financial planning. Life insurance policies enable you to achieve those aspirations by combining savings with life coverage. They encourage disciplined saving, where small monthly insurance premiums accumulate over time, steadily growing into a substantial financial resource. The life insurance plan ensures you'll have the necessary wealth in the years ahead to achieve your long-term financial objectives.

  • Save on Taxes: The tax-saving benefits add to the importance of life insurance as you can save on your yearly taxes per prevailing tax laws. You can save under sections 80C, 80D, and 10(10D) of the Income Tax Act,1961.

  • Peace of Mind: Peace of mind is one of the biggest need of life insurance. Life insurance plans can provide you with the needed peace of mind by knowing that your family can care for themselves financially in the event of your absence. This way, you can live stress-free and improve your quality of life.

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What Are The Top 7 Reasons To Buy Life Insurance?

Here are the top 7 reasons to buy life insurance and understand the importance of life insurance plans:

  • Long-term financial goals
    Life insurance plans help create a large financial corpus for your long-term financial goals, allowing you to save money with life cover protection.

  • Protect the future of your child
    All parents want to provide their children with a good future. Life insurance plans ensure your child has the best future, even in your absence.

  • Loans and Liabilities
    If you have availed of a loan, it is always important to consider buying a term insurance plan. This ensures that the burden of your debts/loans does not cause any difficulty for your dependents in your absence. Term insurance plans are considered affordable to secure the amount of home loan and protect the policyholder's family in case of his/her unforeseen death.

  • Education planning of Child
    Child education policies helps build a financial corpus for your kid’s education expenses in future. This will ensure your spouse has a financially independent life when you are not around. The biggest importance of life insurance is that child plans help you secure your child’s future by providing emergency funds to pay for their higher education or marriage. Your child can also use this money to realise their lifelong dreams.

  • Secure Dependent/Spouse
    The importance of life insurance is especially noticeable in the case of the main income earner’s unfortunate death. A life insurance plan can help stabilize the future of your dependent and/or spouse and help them live a financially independent life even when you aren’t around.

  • Secure Retirement
    Life insurance plans can help you secure your and your spouse’s post-retirement life by providing survival and maturity benefits if you outlive the policy term. You can use these funds to maintain your financial independence after losing your regular monthly income. The payout from these plans can be used to fulfil your post-retirement dreams and live your life comfortably in retirement.

  • Tax-Free legacy
    Life insurance payouts are free of tax u/s 10(10D) of the Income Tax Act, 1961. So you can live your life comfortably after retirement. Leaving a tax-free legacy behind is one of the importance of life insurance.

The need of life insurance cannot be overstated. It serves as a pillar of financial security, protecting your loved ones and ensuring their financial stability when you're no longer there to provide for them.

What Are The Factors to Consider Before Buying a Life Insurance Plan?

Several factors can help you understand the importance of life insurance. Some of the factors that you need to consider before buying the most suitable life insurance plan in India are:

  • Life Cover Amount: You should select the right life cover by assessing your annual income, monthly expenses, outstanding loans, and other financial goals of the family. This way you can increase the importance of life insurance for your family by buying life insurance with a large life cover.

  • Policy Tenure: The policy tenure of your life insurance policy should be long enough to cover you until your financial dependents are no longer dependent on you anymore. If you have dependents like parents and/or a non-working spouse, then you can opt for whole life insurance to ensure their financial security for your whole life.

  • Additional Benefits: Certain life insurance policies can improve the importance of life insurance by offering different bonuses, life stage benefits, as well as the option of including available riders in the base plan. You should review the add-on riders list and include the most relevant riders in the base plan. 

  • Policy Customization: Make sure that the life insurance policy you purchase allows you to customise the plan per your needs. This can be in the form of selecting suitable policy terms, appropriate life cover, different premium payment modes, frequencies, and flexible payout options.

  • Policy T&Cs: Always read the policy documents' fine print to understand better the inclusions and exclusions of the life insurance plan. This way, you and your family can avoid any future confusion at the time of policy or rider claims.

  • Claim Settlement Ratio: A company's Claim Settlement Ratio greatly impacts the importance of life insurance. It is the ratio of the number of claims received by the company to the number of claims settled by the company in a financial year. A life insurance plan from an insurer with a high CSR can ensure that your family’s potential claim in the future will be settled seamlessly.

How to Buy a Life Insurance Plan Online in India?

Here is how you can buy a life insurance plan in 2023 from the comfort of your home:

  • Step 1: Visit the life insurance page of Policybazaar

  • Step 2: Select the type of life insurance you want to buy: Term or Investment

  • Step 3: Fill in your name, gender, mobile number, and date of birth

  • Step 4: Enter the details regarding your annual income, occupation type, educational background, and smoking habits

  • Step 5: Go through the list of available plans and purchase the most suitable one

Wrapping It Up!

The need of life insurance plans is that it is one of the most important investments in everyone's life. These plans can not only financially secure your life but also create a corpus in the long run. You can go through the list of life insurance plans offered, their functions, and the importance of life insurance for a better understanding from Policybazaar.


  • Q: Why is life insurance important?

    Ans: The importance of Life insurance can easily be understood as it offers financial security to the loved ones in case of an unforeseen death of the policyholder. Life insurance plans can help the policyholder’s family stay financially stable so they do not need to compromise their standard lifestyle.
  • Q: What types of life insurance plans are best suited for different life stages?

    Ans:Here is the list of types of life insurance plans you should consider buying for different life stages.
    • People: Prefer market-linked ULIPs or affordable term plans.

    • After Marriage: Consider the term return of premium or endowment plans.

    • With Children: Opt for whole life insurance or child plans.

    • Near Retirement: Choose pension plans or no-cost term plans.

  • Q: Can you choose a specific policy term in life insurance?

    Ans: Yes, you can choose a specific policy term in life insurance. A lot of life insurance plans offer the choice of selecting a policy term as per the customer's suitability. Not just that, whole life insurance also provides life cover for the policyholder's whole life (till 99 or 100 years), which means that the nominee will receive guaranteed benefits under the plan.
  • Q: What is the life insurance claim process?

    Ans: The life insurance policy can be claimed by following the below steps:
    • Claim Initiation: Inform the life insurance company about the policyholder's death as soon as possible in case of a death benefits claim. Submit the filled claims form along with all the necessary documents attached.

    • Claim Processing: The insurer will assess the claim's validity and revert back in case the claim is ready to be settled. The insurer will contact you on the registered contact details like mobile number and email address. Thus, you should make sure that the profile details are up to date.

    • Claim Settlement: The entire sum assured will be transferred to the nominee's account as per the chosen payout option, and the claim will be settled.

  • Q: Should the Claim Settlement Ratio be considered when selecting the insurer?

    Ans: Yes, you should always go through each company's CSR (Claim Settlement Ratio) before selecting the right insurer for yourself. The CSR of an insurance company can give you an insight into the company's claim settlement capabilities for your family's claim in the event of your unfortunate absence.
  • Q: What is the waiting period in a life insurance plan?

    Ans: The waiting period is the duration in life insurance during which the policy either does not offer any coverage or offers limited coverage benefits.
  • Q: What is the premium payment frequency in life insurance?

    Ans: The premium payment frequency refers to the number of times you need to pay the premium for the desired life insurance policy. Most policies allow you to pay the premiums in a monthly, quarterly, annual, or semi-annual mode.
  • Q: Is buying life insurance riders without the base plan possible?

    Ans: You can only buy a life insurance rider with the base plan. This is because riders are supplements added to the base plan to enhance its coverage; with the base plan, they can be bought individually.
  • Q:Will I receive a return at the time of life insurance maturity?

    Ans: Depending on the policy T&Cs you may receive a maturity benefit at the end of the policy term in case you outlive the policy tenure. This way you can understand the importance of life insurance and see if the life insurance of your choice provides a maturity benefit or not.
  • Q:When does my Life Insurance policy terminate?

    Ans: Your life insurance policy ends at any of the following instances, whichever happens first:
    • When you have outlived the policy tenure

    • When you suffered an unfortunate death, and your family has claimed the death benefit

    • When you failed to pay the premiums on the due date and the policy lapsed

  • Q:How many riders can I add to my life insurance policy?

    Ans: You can add as many riders as you want to the base life insurance plan. However, it is important to note that the premium rate will increase with each rider addition.
  • Q:Should you buy life insurance only for the tax benefit option?

    Ans: You may buy life insurance for tax benefits under sections 80C, 80D, and 10(10D) of the Income Tax Act. However, it's essential to consider your long-term life goals, such as education expenses and retirement, and secure your loved ones with sufficient coverage to overcome life's uncertainties.
  • Q:What is the need of life insurance?

    Ans: The need of life insurance is explained as it provides financial security and peace of mind to your loved ones in case of your unexpected absence. It helps cover outstanding debts, replace lost income, and ensures your family's well-being, making it a vital part of responsible financial planning.
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