Nature and Scope of Life Insurance

The main aim of a life insurance cover is to protect the dependent’s needs after the policyholder’s unforeseen demise. In addition to the emotional difficulties, the financial instability occurring because of losing the family’s breadwinner is immensely important. This is because most advisors recommend that a life insurance plan should be an essential part of financial planning. So it is important to be aware of the aim, nature, and scope of life insurance. 

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How Does a Life Insurance Plan Work?

Life insurance is a scheme between an insurance company and a policyholder, where the insurance company promises to pay an amount of money in return for a premium amount, upon the death of the policyholder or after a set period. Various types of life insurance products are available in the insurance industry. These life insurance coverages pay a lump sum amount of death benefit after the demise of the policyholder. In some plans, the maturity amount is paid at the end of the policy tenure in case of surviving the term.

Generally, there are two basic types of life insurance plans:

  • Protection and Savings Plan

  • Pure Protection Plan

What is a Protection and Savings Plan?

A savings and protection plan is a financial product that helps in planning your long tenure goals such as funding children’s education, buying a home, etc. while providing life cover benefits.

What is a Pure Protection Plan?

Pure protection plans are specifically designed to safeguard the future of your family by offering a lump sum amount in case of your absence.

Let’s understand this with the help of an example:

Ram has a life insurance plan of Rs. 25 Lakhs and he pays a yearly premium for a term of 10 years to make sure that his wife gets the life cover in case of his unforeseen death during the 25 years of plan coverage. In the case of Ram dying before the maturity time, his wife receives 25 Lakhs. And in the case of surviving the policy, Ram is liable for the sum assured amount at the plan maturity.

Types of Life Insurance Plans

Here are the different types of life insurance plans available in the insurance industry:

  1. Term Insurance Plan

    Term Insurance plans offer the pre-specified sum to the policyholder's family members if in case the policyholder passes away during a specific term. If the policyholder survives till the end of the policy term no maturity benefit is provided. This plan remains active for a pre-specified period and is one of the most cost-effective plans available in the market.

  2. Whole Life Insurance

    Whole Life Insurance plans provide coverage at all points in your life in which the plan is in an active state. This time of coverage can go as long as 100 years. These plans also provide loan facilities to the life assured and the overall procedure of purchasing is simple online.

  3. Money Back Plans

    Money back plans provide different survival benefits to the policyholder who is associated with the policy term and give money during the policy term. Irrespective of all the paid installments, if the policyholder passes away, the family receives the whole sum. These plans are expensive as compared to other products.

  4. Endowment Plans

    In Endowment Plans, the policyholder receives a lump sum amount of money if he/she survives the policy term till the maturity date. The plan offers insurance along with savings simultaneously. They come along with rider – add-ons that enhance the coverage of the plan. The endowment plan guarantees.

  5. Retirement Plans

    Retirement plans are plans that guarantee a fixed income after your retirement and help in building a retirement corpus. This amount is then invested to produce after-retirement money flow, so forming a financial shield and helping in risk mitigation.

Benefits of Buying a Life Insurance Plan

  • Death Benefit

  • Building Wealth Through Investment Components

  • Financial Security

  • Loan facility

  • Life Stage Planning

  • Assured benefits of Income

What Are the Factors that Affect Life Insurance Premium Rates?

Now that you know the nature and scope of life insurance plans, let’s find out the factors that can affect the premium rates of life insurance:

  • Age: The premium is lower for younger individuals and progressively increases with age

  • Gender: Various researches have shown that women live longer than men. Thus, the premium rate of life insurance premium is lower for women in comparison to men.

  • Medical Conditions: In case you have any pre-existing ailments or previously have suffered from an ailment that might affect your current medical condition, you would be charged a higher amount of premium.

  • Family History: If the probability of suffering from an illness is considerably high or any hereditary illnesses run in your family, you may have to pay a higher amount of premium.

  • Coverage Amount: A higher amount of sum assured would result in a higher premium amount and vice versa.

  • Lifestyle Habits: Lifestyle practices such as drinking alcohol and smoking can affect your health and result in numerous health problems. Thus, insurers charge a high amount of premium for people who drink alcohol or smoke.

  • Occupation: If your job profile has a high risk, the premium for your policy would be higher than others. For instance, if you are working on a construction site or if your job is putting you at any kind of risk, like exposure to chemicals regularly, the insurer will charge a higher amount of premium.

4 Simple Steps for a Smooth Claim Settlement

  • Fill out the Claim Intimation Form

  • Inform the Insurance Company

  • Receive the claim Benefit

  • Submit all the necessary documents and applications

Wrapping It Up!

Considering the difficult times, we are living in today, it is always a good idea to secure the lives of your family members with a life insurance plan. A life insurance plan can be bought by anyone regardless of their income. Individuals having low income can opt for a lower sum assured amount that fits within the budget.

Types of Term Plans

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