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What is Life Insurance? – Meaning & Benefits

Life insurance is defined as a contract between you and an insurance company wherein you pay regular premiums, and in return, the insurer promises to provide a financial payout to your beneficiaries when you pass away. It's a way to ensure that your loved ones are financially protected and supported even if you're no longer there to provide for them, offering peace of mind and security for the future.

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What Is Life Insurance And How Does It Work?

Life insurance is a financial contract between 2 entities – a policyholder and the insurance company. In this contract, the policyholder pays regular premiums to the insurer in exchange for a death benefit that will be received by the assigned nominees post the policyholder’s sudden death. Life insurance policies also offer investment opportunities that allow you to save money for a secured future. 

Let’s understand how life insurance works with the help of this example:

  • Rajeev, a 30 year-old man with no smoking/tobacco habits, buys a life insurance policy from Policybazaar. 

  • Rajeev bought a protection plan with premium return benefit (Term Return of Premium policy) of 1 Crore life cover with policy term of 38 years. This means he will be covered until the age of 68 years and will pay Rs. 1,490/month for the entire policy term to keep the policy active.

  • In case of Rajeev’s unfortunate death during the policy term, the insurance company will pay a death benefit of Rs. 1 Crore to his nominees. This money can help cover living expenses, debts, and other financial needs of the nominees.

  • If Rajeev survives the entire policy term (i.e. 38 years), he will be returned all the premiums that he had paid so far (minus GST). This way, Rajeev not only get to protect his loved ones, but also gets back his money allowing him to save/invest further.

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What Are The Different Types Of Life Insurance?

Now that we have discussed in detail the meaning of life insurance, it is also important that we understand the types of life insurance policies available for customers. 

Types of Life Insurance Plans in India Types of Life Insurance Plans in India

There are two types of life insurance plans:

  • Pure Protection 

  • Savings Plan 

Let’s understand them in detail: 

  1. Pure Protection/Term Insurance Plan

    Pure protection plans, also called Term insurance plans, are designed to provide financial protection to your family in case of your untimely death. These plans have lower premiums because they offer pure risk coverage without any savings or investment component. The premiums for regular term plans start at just Rs. 473/month for a 1 Crore term insurance cover. Here are the different types of term insurance plans available:

    • Whole Life Insurance: Covers you for your entire life, i.e. till 99/100 years of age.

    • Term Return of Premium: Provides dual-benefits, i.e. sum assured after death and returns back all paid premiums after maturity.

    • No Cost Term Insurance: Policyholders have the option to exit the term insurance plan at a specific life stage and get all the premium amount back that they paid.

    Term insurance can be bought by anyone, provided they fulfill the criteria required to buy term plan. Usually, the different types of term insurance plans can be bought by the following specific categories of people:

    *Note: You can also read what is life insurance in hindi.

    *Note: You can calculate the premiums easily for term insurance using an online term insurance premium calculator.

  2. Savings Plan

    Savings plans combine life insurance coverage with a savings or investment component to help achieve long-term financial goals. Savings plans help achieve financial goals, provide financial protection, and accumulate wealth over time. Here are the different types of savings plans available:

    • Endowment Policy: Offers the combined benefits of insurance cover and savings, where sum assured and accumulated bonus is paid back at the end of the policy term.

    • Money back Policy: Repays survival benefits periodically during the term of the plan. The benefits may or may not be guaranteed depending on the performance of funds (if any).

    • Retirement plans: Helps individuals secure their post-retirement life by saving funds throughout their earning years. 

    • Unit Linked Insurance Plans (ULIPs): Goal-based financial product that is designed to provide both life insurance and wealth creation opportunities.

    • Child Insurance Policy: Mixture of insurance and investments that are designed to meet the rising education and other needs of children. 

Important Terms About Life Insurance

Important Term About Life Insurance Important Term About Life Insurance

What are the Factors that Affect Life Insurance Premium Rates?

Now that we know the definition of life insurance and life insurance meaning, let’s discuss the factors that can affect the premium rates of life insurance plans:

Factor Affecting Life Insurance Premium Rates Factor Affecting Life Insurance Premium Rates

Factor Affecting Life Insurance Premium Rates Factor Affecting Life Insurance Premium Rates
  • Age:
    The life insurance premium rates are lower for younger individuals, and it gradually increases with age.

  • Gender:
    As per various studies, females live longer than males. Thus, the life insurance premium rates are lower for females in comparison to males.

  • Medical Conditions:
    Your past and present health status can determine the premium amount for your life insurance policy. In case you have any pre-existing diseases or have suffered from a disease in the last years that may affect your current health, you would be charged a higher premium rate.

  • Health history of family:
    The probability of suffering from an illness that runs in your family is considerably higher. So, in case of any pre-existing diseases in your family history, you may have to pay a higher premium.

  • Drinking alcohol and smoking:
    In life insurance meaning of lifestyle practices such as drinking alcohol and smoking can affect your health and lead to various health issues. Thus, insurers charge a high amount of premium for persons who drink alcohol or smoke.

  • Coverage type:
    The type of life coverage you avail of can decrease or increase the premium of a life insurance plan. If you add term riders to your life insurance plan, the premium amounts would increase. A longer policy tenure also results in a higher amount of premium compared to a shorter policy tenure. Additionally, the type of plan you select also affects the premium rates like term insurance plan is the most economical and cost-effective form of life insurance.

  • Coverage amount:
    What is life insurance coverage directly depends on the cover amount on your life insurance policy. This means, in life insurance meaning, a high amount of life cover would result in a higher premium amount.

  • Occupation:
    Working in a high-risk job results in an increase in premium rates. For instance, if you work in a construction site or your work puts you at some risk, like chemical exposure, the insurer will charge a higher amount of premium.

What are the Benefits of Buying Life Insurance?

To help you understand the meaning of life insurance better, here is a list of benefits of buying life insurance in India:

  • Financial Security: The most important benefit of life insurance is that it provides financial security to your loved ones after your death. The insurer provides the required life cover in exchange for premiums paid on a regular basis. The death benefit can help your family pay for funeral expenses, outstanding debts, and living expenses.

  • Wealth Creation: The life insurance plans provide protection against an eventuality along with the chance to create wealth in the long term. With these plans, you can take care of your future expenses, retirement, and beat inflation.

  • Free from Liabilities: A life Insurance plan gives your loved ones the power to be self-reliant and independent. A right life insurance plan helps them repay the liabilities such as home loans, personal loans, auto loans, or credit card loans. The term insurance plan also covers charges of hospitalization, treatment of critical illness, providing a comprehensive package of protection.

  • Acts as an Income Replacement: If you are the sole earning member of the family, a life insurance plan can provide you with a guaranteed income for your loved ones every month, thus, making sure that their daily lifestyle does not get disturbed and they remain financially stable.

  • Child’s Educational Future: The payouts from these plans help you to fund the educational costs of your children and also the expenses for their marriage or medical costs.

  • Tax Benefits: With life insurance plans, you can get life insurance tax benefits as per the prevailing tax laws under sections 80C, 80D, and 10(10D) of the Income Tax Act, 1961.

  • Immediate expenses after death: It helps your loved ones cover a part of important expenses instantly after your death, such as medical bills or funeral costs.

  • Peace of mind: Knowing that your loved ones will be taken care of after your death can provide peace of mind for you and your family.

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How to Choose the Right Life Insurance Plan?

Here are some of the points that you must keep in mind when you choose the right life insurance plan:

  • Know Your Goals: Different life insurance plans serve different purposes. Figure out what you want to achieve with your life insurance to choose the right type.

  • Check the Coverage: Think about how much money your family needs for daily expenses and future plans. Usually, it's best to pick a coverage that's 10 to 15 times your yearly income. You can also use a human life value calculator to see what's right.

  • Policy Length: There are many types of life insurance with different time limits. Choose one that matches your goals.

  • Extra Protections: Some life insurance plans let you add extra protections to the basic plan. These can increase your coverage and protect you in case of accidents, critical illnesses, or more.

  • Insurer's Reputation: Before you decide, make sure the insurance company is known for settling claims, being financially stable, and understand what's not covered.

  • Expert Advice: If you're not sure, talk to a financial advisor. They can help you choose the best life insurance for you and your family. You can contact Policybazaar’s Insurance Advisors to solve any insurance query or for customized suggestions. 

How to Buy Life Insurance Plans From Policybazaar?

Now you may be wondering what is life insurance purchase process is. You can buy the most suitable life insurance plans from Policybazaar. Policybazaar provides a series of the best life insurance plans depending on the customer’s needs and situation. You can compare from top 15+ insurers and buy directly from the Policybazaar website and be assured of choosing the most appropriate plan for you. The steps to buy life insurance from Policybazaar are easy and mentioned below:

Step 1: Visit the Life Insurance page of Policybazaar

Step 2: Choose if you want to buy Term Insurance Plan or Investement Plan

Step 3: Fill in your details, like Name, Phone Number and DOB

Step 4: Next, fill in your Annual Income, Educational Qualification, Smoking Preferences, Occupation Type and Pin code

Step 5: Choose your most preferred plan among all the available plans from various insurance companies

Step 6: Fill in your details to buy the policy

Step 7: Proceed to payment with your preferred payment option

Let’s Understand some of the commonly used terminology in Life Insurance: 

  • Insurer: In life insurance meaning of insurer is the insurance company that sells the life insurance policies.

  • Life Assured: The individual whose life is covered under the life insurance is called the life assured.

  • Life Cover: In life insurance meaning of life cover is the sum assured or the death benefit payable to the nominee of the policy, in case of the policyholder’s untimely death.

  • Maturity Benefit: The definition of life insurance maturity benefit is the amount payable to the policyholder in case they outlive the policy term.

  • Nominee: In life insurance meaning of a nominee is the person who is eligible to receive the life insurance benefit amount in case of the policyholder’s untimely death.

  • Policyholder: The Policyholder is the person who purchases the plan and regularly pays the premiums to keep the plan active. For example: If you purchased the plan for your mother, then you would be the policyholder, and your mother would be the life assured.

  • Policy Term: In life insurance meaning of policy term is the tenure for which the insurer promises to cover the life assured.

  • Premium: The amount paid by the policyholder to receive the required coverage for the entire policy term.

  • Premium Payment Term: In life insurance meaning of the premium payment term is the duration for which the policyholder needs to pay the premiums. The premiums can be paid in regular, limited, or single premium payment terms.

Wrapping It Up!

Now that we have understood what is life insurance and the meaning of life insurance, let us take a look at the importance of life insurance. Due to the innumerable benefits of life insurance like life protection, financial security, tax benefits, etc., it is one of the better decisions in life to purchase a suitable policy. Hence, you must firstly understand the definition of life insurance and then consider purchasing a life insurance policy so you can protect your loved ones against death and disability and secure them for a happy future.


  • Q: What is life insurance in simple words?

    Ans: To answer what is life insurance in simple words, it is a type of insurance that provides financial coverage to the life of the policyholder as well as a chance to create wealth for the future. It provides financial protection by offering the death benefit to the nominee in case of the policyholder’s untimely death during the policy term. And, you can create wealth by investing in life insurance plans with investment components to build a corpus for your future.
  • Q: What are the 2 main types of life insurance?

    Ans: The 2 main types of life insurance are as follows:
    • Term life insurance plans
    • Investment/Savings plans
  • Q: What does life insurance cover?

    Ans: When understanding life insurance meaning, it covers the policyholder’s death from all natural causes. Additionally, life cover also offers financial security in case the policyholder dies because of any illness or accident. You can also increase the coverage of the base life insurance plan by adding riders at additional premiums payable along with the base premiums.
  • Q: What does life insurance not cover?

    Ans: Life insurance does not cover any of the following:
    • Suicide of the policyholder within a first year of issuing policy
    • Murder of the policyholer in cases if he/she is involved in crime or any criminal activity
    • Death under the influence of drugs or alcohol
    • Death in case of participating in any adventurous sport or dangerous activity
    • Death from pre-existing illnesses
    • Death because of child-birth
    • Death because of natural disaster
    • Death because of an undisclosed illness or harmful practice
  • Q: How to claim life insurance after death?

    Ans: Life insurance can be claimed by the nominee after he/she intimates the process. The he/she must submit the death claim form, ID and address proofs of the nominee, original policy documents, death certificates, FIR, and Post Mortem report (if applicable). The company then verifies all the documents and forms and begins the settlement process.
  • Q: Is life insurance worth buying?

    Ans: Yes, life insurance is a worthwhile investment. Anybody who understands what is life insurance and the definition of life insurance knows that people with financial dependents can secure their loved ones with a life insurance. In the event that the only breadwinner dies, a life insurance policy serves as a financial safety net, assisting your loved ones in paying for expenditures such as a loan, childcare, school, health, and a variety of other everyday obligations. Life insurance is an inexpensive method to financially safeguard the ones you care about the most.
  • Q: How many people may be named as beneficiaries on a life insurance policy?

    Ans: The number of beneficiaries you may add to your insurance is unlimited. Nevertheless, if the insured has a will that specifies who the amount of the insurance benefit should go to when he or she dies, the benefit will go to the person named in the will, regardless of the nominee.
  • Q: What is the purpose of life insurance?

    Ans: People who understand what is life insurance in simple words, know that purchasing life insurance protects your loved ones from financial problems if something were to happen to you. It gives financial security, aids in debt repayment, aids in the payment of living expenses, and aids in the payment of any medical or final expenditures.
  • Q: What are the three primary kinds of life insurance?

    Ans: You can understand life insurance meaning and types by the three primary kinds of life insurance, which are term insurance, investment plans, and whole life insurance.
  • Q: Does life insurance expire?

    Ans: Yes, people who understand what is life insurance in simple words know, that every life insurance expires at the end of the policy term. In case the policyholder dies before the end of the policy, the policy will terminate on the payment of the claim benefit. However, for people who have bought whole life insurance, the policy will expire on the death of the policyholder or at the age of 99/100 years.
  • Q: What is the main purpose of life insurance?

    Ans: The main purpose or meaning of life insurance is to provide financial support to your loved ones when you pass away. You pay premiums to an insurance company, and in return, they promise to give a sum of money to your family or beneficiaries. This financial protection ensures that your family can maintain their standard of living and meet their needs even after you're gone.
  • What are the benefits of term life insurance?

    Ans: Here are 4 common benefits of term insurance:
    • Low premium rates
    • Tax Benefits
    • Death Benefit
    • Long term coverage
  • What are the key features of a best term insurance plan in India?

    Ans: Let's understand what is term life policy here. Term insurance offers financial protection for a certain period to the policyholder, thereby, offering a lump sum payout if the policyholder unfortunately passes away during the policy term.

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