What is Life Insurance: Key Features, Types & How It Works

We cannot control life's uncertainties, but we can prepare for them. This is where Life insurance comes in. It provides a safety net for your family in case of unforeseen events.

Whether you're the sole earner of your family or contribute to household finances, life insurance ensures your loved ones remain secure. 

Read on to learn about the meaning of life insurance, its features, types, and benefits, how to choose the right plan for your needs, and much more.

Life insurance is a contractual agreement between a policyholder and an insurance company, whereby the policyholder makes premium payments. On the other hand, the insurer agrees to pay the sum assured to the respective beneficiaries in case of a policyholder's death or after a specific term of years.

Life insurance is not just financial protection for your family; it's also part of wealth management. Specific plans simultaneously provide the benefits of risk coverage and investment. Thereby, they can help you achieve your financial goals while ensuring your loved ones are well protected.

Financial Protection

Wealth Creation

Life insurance provides a wide range of benefits, including the following:

• The sum assured in the policy is paid to the beneficiary if the policyholder is no more.
• You can pay the premium payment of the life insurance policy at your convenience, monthly, quarterly or yearly.
• Certain premiums are deductible under Section 80C, and payouts are often tax-exempt under Section 10 (10D) of the Income Tax Act of 1961.

In some life insurance policies, you can borrow a loan from the collected premium amount after a certain period.

The life insurance policyholder selects a plan, pays premiums regularly, and in return, the insurer agrees to pay the sum assured. It is received either upon the insured’s death or after the policy matures.

It works based on the following components:

• Premiums: These are periodic payments made by the policyholder to keep the policy active.
• Sum Assured: This is the amount paid to beneficiaries upon the policyholder’s death.
• Policy Term: The duration for which the policy is active.
• Payout Options: Beneficiaries may receive the payout as a lump sum, in installments, or as a combination of both.

Age

Health

Policy Type

Sum Assured

Term of the Policy

Lifestyle

Occupation

Term Insurance

Whole Life Insurance

Unit-Linked Insurance Plans (ULIPs)

Endowment Plans

Money-Back Plans

Child Insurance Plans

Yes, you need a Life Policy, if you have dependents, financial obligations, or future goals. Here are few things you should consider before buying Life Insurance. 

• Are you the primary earner in your family?
• Do you have significant debts, like a home loan?
• Do you want to ensure your child’s education or your spouse’s financial stability?

If the answer to any of these questions is yes, then you must consider a life insurance plan. Moreover, if you choose a life insurance policy, then as per the general guidelines, opt for coverage worth 10–15 times your annual income.

To claim life insurance after the policyholder’s death, follow the steps mentioned below:

Step 1: Inform the insurance company about the policyholder’s death.

Step 2: Next, you will have to fill out the death claim form with necessary details like name, age, reason of death, etc., and submit the form.

Step 3: Provide the death certificate, policy documents, ID proofs, and any other document required by the insurance company.

Step 4: Once all the documents are received by the insurance company, it will proceed with the evaluation step. Based on this, the insurer will determine if the claim is to be settled or rejected.

Before you apply for a claim, however, please note the following aspects:

• Be aware of the claim intimation period specified by the insurer.
• Review the policy terms and conditions and ensure there is legal proof of the beneficiary.
• Understand the type of claim (maturity or death)

Assess Your Needs

Research about the Insurance Company

Compare Various Policies

Understand Terms

While choosing a life insurance policy, it is essential to understand the policy terms and components. Ensure clarity on exclusions, premium payment terms, and other conditions before selecting a policy. Here are some of the key terms in life insurance that you should know:

• Policyholder: The individual who owns the insurance policy.
• Insured: The person whose life is covered under the policy.
• Premium: The payment made to keep the policy active.
• Beneficiary: The person who receives the death benefit.
• Coverage: The total amount assured under the policy.

Life insurance is more than just a financial product; it’s a promise to secure your family’s future. Whether you choose a term plan for its affordability or an investment-linked policy for wealth creation, the right plan ensures peace of mind for you and financial stability for your loved ones.