What is life insurance?

This article will explain to you the fundamentals of life insurance.

There are two kinds of life insurance:

1. Term Insurance Plans
2. Whole Life Insurance Plans

Rajesh wanted to buy life insurance but was too confused about the subject. He was getting so many calls from various brokers that he simply did not know what to do.

Life insurance protects your family from financial distress after your death. 

When you buy a life insurance policy, you are extending a financial cover to your dependents. This cover takes care of their financial needs after you are gone.

The person who buys a life insurance policy is called a policyholder. He buys a policy after paying a certain premium from either an insurance broker or an insuring company like the Life Insurance Corporation of India.

A policyholder nominates a few or all his dependants as beneficiaries. These dependants could be his/ her spouse, children or aged parents.

There are two kinds of insurance policies:

• Term Insurance Plans
• Whole Life Insurance Plans

Term Insurance 

This plan runs for a certain duration. This duration could be 5,10, 15, 20, 25 or 50 years. A policyholder has to pay his/ her premium for the entire duration. If he fails to pay his premium regularly, the policy might lapse. 

If a policyholder dies during this duration, his dependants get the sum assured from the insuring company. However, the dependant or dependants need to claim the sum assured. 

Please note that different companies may have different premia for the same term plan. For example, a term plan of 20 years of Company A might have an annual premium of Rs. 10,000. On the other hand, another Company B might charge Rs. 15,000 for the same term plan. 

Also please note that similar looking term plans might have different benefits. Therefore, a seemingly expensive term plan might have more benefits than an inexpensive one. 

Please also note that the dependant receives the sum assured only when the policyholder expires during the running of the policy. 

Whole Life Insurance Plans

These plans provide insurance coverage to the policyholder for his entire life. He can benefit from such plans only if he continues paying his premium regularly. 

Why should you buy life insurance?

1. To  save your near and dear ones from financial distress

2. To save your tax liabilities 

Also, read- How to buy insurance online

Do you have any queries on insurance? Please leave your questions in the comment box below.