What is Life Insurance – Definition and Meaning

Life is too precious, so much that it is difficult to put a price on it. Money surely can't bring our late loved ones back or buy us happiness and affection. But it can very well help us realize its significance for survival. A family's survival is risked if its sole earner dies unexpectedly. The demise of a loved one creates a void that is hard to fill but his/her absence must not disrupt the financial future of the family. 

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As it is, the grief of losing a member is a lot to deal with; at least money woes should not be a reason behind worries and miseries. It is, therefore, essential to realize the value of your life and sign up for life insurance, which is a protection against financial loss resulting from the insured's death. In legal terms, life insurance is a contract between a policy owner and insurer, wherein the latter agrees to reimburse the occurrence of the insured individual's death or other events such as terminal illness or critical illness. The insured agrees to pay the cost in terms of insurance premium for the service.

What is a Life Insurance Policy? 

Life insurance defined as a contract/agreement signed between an insurer and a policyholder. This agreement determines the money to be paid to the beneficiary/nominee after the death of the policyholder. Precisely, these policies are commonly known for providing life cover to the life assured. 

What Life Insurance Offers?

Life insurance offers you risk coverage and takes care of the monetary needs of your family after your death. Besides providing coverage against all sorts of risks, it allows you to grow your investments. It could also be viewed as a long-term investment tool that helps you to save for your child's future expenses or your post-retirement expenses.

Depending on the diversified needs of every individual, various insurance plans are available in the market. Such customized plans are made in such a way that they suit the likes of a majority of customers.

Following are the different forms of life insurance plans: 

*All savings are provided by the insurer as per the IRDAI approved insurance plan. Standard T&C Apply

Types of Life Insurance 

There are various types of life insurance policies available to aid you in meeting the needs of various life stages.

  1. Term life insurance

     You get coverage for a tenure that you specifically choose. These policies could be availed by people who find it difficult to pay a lump sum amount for an endowment assurance policy or whole life policy.

  2. Whole life insurance

     This policy covers you for as long as you live. You stay protected for your entire life; thus, this plan is named as a whole life policy.

  3. Endowment policy

     Risk is covered for a specific period and at the end of the period sum assured along with the accumulated bonus, is paid back to the policyholder. Endowment policy pays back the face value of the amount on the insured person's death or after a stipulated number of years. Some policies also make payments in case of critical illness.

  4. Money back policy

    This policy repays survival benefits periodically during the term of the plan.

  5. Savings & investment plans

    Help you save and invest to make your money grow.

  6. Retirement plans

    This plan is a retirement solution plan and does not cover life insurance. You can build your retirement corpus as per your risk appetite and on completion of the specified period, a certain amount of money is paid to the insured/beneficiary in the form of pension, monthly, half-yearly, or annually.

  7. Unit Linked Insurance Plans (ULIPs)

    A part of investment goes towards providing life cover, while the residual portion is invested in stocks or bonds. It is a goal-based financial product, which is designed to impart safety and wealth creation opportunities.  

  8. Child insurance policy 

    These plans are designed to meet the rising education and other needs of children. A child plan offers a lump sum amount on the death of the policyholder, but the policy doesn’t end. All future premiums are waived and the insurance company continues investing money on the behalf of the policyholder. The child gets the money at specified tenure as planned.

Life insurance is undoubtedly mandatory but availing of it without understanding its functioning would make your purchase worthless and useless. Various terms and phrases need to be familiarized with prior to buying life insurance. Term life insurance and whole life insurance would differ in an appeal if the consumers have a strong idea about their features and uses. The real motive behind life insurance would get defeated if you buy a plan without prior knowledge and your decision turn out to be regretful, especially at the time of maturity of the plan or the death of the policyholder. Let us see how:

  1. Term Life Insurance Protection Plan

    Term life insurance protection plans give you coverage only for a specified term. The main advantages of term life insurance protection plans are that they are easy on your pocket, give you the highest amount of coverage, safeguard your family against financial liabilities and offer you tax benefits.

    Term life insurance protection plans have no face value and hence the premium for such policies is comparatively lower when compared with other policies. In the case of survival of the policy term, the insured does not get any return. The premiums in such policies increase with rising age as the chances of death are high in old age. Once you cross 60 years, these policies become difficult to afford.

  2. Life Insurance Investment Plan

    These life insurance investment plans offer you dual advantages of investment and protection. The life insurance investment plans range from low-risk to high-risk investment propositions, depending on the risk profile of a customer.

  3. Life Insurance Coverage

    Life insurance coverage is defined as the sum assured that you buy under the policy. You have the discretion to decide your sum assured but certain factors that affect the coverage are your annual income, your life stage, and your risk group.

  4. Life Insurance Contract Terms and Conditions

    The most common terms used in a life insurance contract are:

    • Indisputable Clause: Your insurance company is entitled, usually during the first two years of the policy, to challenge the validity of your policy in case you hide any information from the insurer. If you are found guilty of concealment, your insurer could void the policy and return the premiums.

    • Suicide Provision: The suicide clause in your policy specifies that the insurance company will not pay you the sum assured if the insured attempts or commits suicide within a specified period from the beginning of the coverage.

    • Reinstatement Clause: If your policy has lapsed due to non-payment of premium, you can revive it by paying all the past outstanding premiums along with interest. However, you need to prove to your insurer that you continue to enjoy good health to qualify for this provision.

    • Settlement options: You have the provision to collect the settlement proceeds as per the options offered by your company.

    • Excluded Risks: Depending on the policy, death under circumstances like war or an aviation accident may or may not be covered.

    • Grace Period: There are times when you are unable to pay premiums due to a financial crunch. Your insurance company provides a grace period within which you can make the necessary monetary arrangements and pay your premiums.

*All savings are provided by the insurer as per the IRDAI approved insurance plan. Standard T&C Apply

Benefits of Life Insurance 

Life insurance is specifically designed to minimize the effect of the financial crisis your loved ones might incur upon your death. The plan benefits are: 

  • Free of any Liability: Life Insurance plan gives your loved ones the power to be self-reliant and independent. A right term 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 a guaranteed income to your loved ones every month, thus making sure that their daily regimen does not get disturbed and they remain stable financially. 

  • Education and other expenses of dependants: The payouts from these plans help you to pay the educational costs of your children, and also the expenses for their marriage or medical costs. 

  • 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. 

Life Insurance Claims

Life insurance claims can be classified under below heads:

  1. Death Claims

    In case of a claim under your life insurance policy, your beneficiary needs to submit the following documents:

    • A filled claim forms

    • Original policy bond or contract

    • An original, or certified copy of the policyholder ‘s death certificate

    • Proof of identity as the beneficiary

  2. Maturity Claim

     In order to avail maturity benefits of your life insurance you need to submit the following to your insurer

    • Original policy bond

    • Maturity claim form

Wrapping It Up!

Due to the innumerable benefits of life insurance like life protection, financial security, tax benefits, etc., it becomes difficult to avoid it. So, you must do a favor to your dear ones and protect yourself against death and disabilities by opting for life insurance. Air, water, food, and shelter are indispensable for all of us, so why is it that we are ignoring insurance? Make life insurance your oxygen and provide respite to your family by insuring your life.

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