What is Life Insurance?
Life Insurance is a contract between an insurance policy holder and an insurer, where the insurer promises to pay a sum of money to the beneficiary when the insured person dies or after a pre-determined period in exchange for the premiums paid by policyholder.
In life insurance policy you need to pay premiums for a specified policy term and life insurance company provides you with a comprehensive life cover, in return. Life Insurance protects future of your loved by paying a lump sum amount referred to as death benefit if an unfortunate event occurs. Some life insurance policies provide you a Maturity Benefit after the end of the policy term.
Lack of awareness is one of the major impediments for widespread adoption of life insurance. The availability of different types of insurance products also confuses some people. But most life insurance policies function in a similar manner. Let us understand what is life insurance and how does it work.
Life Insurance Policy Meaning.
Life insurance is defined as a legally binding contract between a policyholder and an insurer in which the insurance company provides financial protection to the policyholder and pays a death benefit to the nominee when the insured dies. For a life insurance policy to remain in force, the policyholder must pay regular premiums over the period of time or pay a single premium upfront.
In a nutshell, all the benefits of a life insurance policy are tied to the payment of premiums, which is why one should opt for a premium that can be easily serviced.
A life insurance policy works only if the policyholder has paid all premiums regularly.As you have understood the meaning of life insurance policy you will find it easier to know how life insurance works.
How does a Life Insurance Policy Work ?Life insurance is a legal contract where you pay a small sum as a premium for ensuring a large protective sum. The insurer will make the large sum available to your family and dependents in the case of your untimely demise.
Usually, the life insurance is available for a limited period. Thus, if your death occurs within this period the life insurer is bound to pay a death benefit, which is also called sum assured. However, in the case of your surviving the term, you may reciveve a maturity benefit depending on the type of life insurance.
Whole life insurance plans however, are more likely to pay the death benefit than maturity benefit.
Different Types of Life Insurance Plans in India.
Now that you know what is a life insurance policy, let us understand how many types of life insurance policies are available. Life insurance plans are based on your discretion. There are various types of life insurance policies that you can choose from. Remember that it is important to consider your financial goals when you are planning to buy the best life insurance plan. Listed below are the different types of life insurance plans that are available:
Term Life Insurance Plan. Term insurance is the most popular one in life insurance category. It has a specific period and expires at the end of the term. The best things about a term plan are the premiums are quite affordable. These plans can be bought by people who have just started their career as the premiums are low.
Some of the best term life insurance plans offer critical or terminal illness cover – that means the policyholder will be paid a lump sum amount on diagnosis of life-threatening diseases to help them cover the medical expenses.
Whole Life Insurance Plan. As the name suggests, it is a policy that covers you till you turn 99. That means, you can be protected till you are 99 years of age. Whole life insurance plans have a death benefit along with cash value. The life insurance policy’s cash value will grow over time and can be withdrawn by the policyholder when it accumulates enough value. Or, it can also be withdrawn if the policyholder opts for a loan on the life insurance policy.
Child Insurance Plan. Child insurance plans are life insurance policies that are opted to safeguard the future of your child. Along with providing a life cover, it helps in building an education fund to support your child’s dreams and aspirations. Child plans are investment plus insurance plans designed to assist you in creating wealth for your child’s future needs. You can invest in these plans right when your kid is born to build a strong financial cover.
Retirement Plans. These life insurance policies help you build a retirement corpus so that you can enjoy your post-retirement life. You can make your spouse the beneficiary to your life insurance plan. So, in case, something happens to you, they can be financially independent.
Also, having the best life insurance plan will help you pay for medical expenses during retirement.
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