life-insurance

What is Life Insurance?

Life insurance is a financial product designed to provide financial protection to your loved ones in the event of your death. It ensures that your family or beneficiaries will receive a monetary payout to cover expenses such as living costs, debts, and other financial obligations that may arise after your passing.

How Does Life Insurance Work?

In exchange for regular premium payments, the life insurance company agrees to pay a lump sum or series of payments (called the death benefit) to your beneficiaries upon your death. The amount paid depends on the coverage amount stated in the policy, which can vary based on your needs and preferences.

Types of Life Insurance

  • Term Life Insurance: This type of life insurance provides coverage for a specified term, typically 10, 20, or 30 years. If the policyholder passes away during the term, the beneficiaries receive the death benefit. If the policy expires before the policyholder's death, no payout is made.
  • Whole Life Insurance: Whole life insurance offers coverage for the entire lifetime of the policyholder. In addition to the death benefit, this type of policy often builds cash value over time, which the policyholder can borrow against or withdraw. Premiums tend to be higher than term life insurance, but the coverage is permanent.
  • Universal Life Insurance: A flexible life insurance policy that allows you to adjust your premiums and death benefit. Universal life insurance also accumulates cash value, and the policyholder can choose how the money is invested.
  • Variable Life Insurance: A type of permanent life insurance that allows the policyholder to allocate their cash value in various investment options like stocks and bonds. The death benefit and cash value may fluctuate depending on the performance of these investments.

Why Do You Need Life Insurance?

Life insurance provides peace of mind knowing that your loved ones will be financially supported when you're no longer around. It can help cover various expenses, including:

  • Funeral and burial costs
  • Mortgage or rent payments
  • Childcare or education expenses
  • Outstanding debts or loans
  • Income replacement for your family’s daily expenses

Factors Affecting Life Insurance Premiums

The cost of life insurance premiums varies based on several factors, including:

  • Age: The younger you are when you purchase life insurance, the lower your premiums are likely to be.
  • Health: Insurers may require a medical exam, and pre-existing health conditions could increase premiums.
  • Coverage Amount: The higher the death benefit you choose, the higher your premiums will be.
  • Type of Insurance: Term life insurance tends to be cheaper than permanent life insurance options.

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life-insurance

Life Insurance – Frequently Asked Questions

Life insurance is a contract between the policyholder and the insurer, where the insurer guarantees payment of a death benefit to named beneficiaries upon the death of the insured, in exchange for premiums paid by the policyholder.

Common types include Term Life Insurance, Whole Life Insurance, Endowment Plans, ULIPs (Unit Linked Insurance Plans), and Money Back Plans. Each serves different purposes like pure risk cover, savings, or investment.

Anyone with financial dependents (spouse, children, aging parents) or liabilities (loans, mortgages) should consider buying life insurance to ensure financial security for their loved ones in their absence.

A term insurance plan provides pure life cover for a specified term (e.g., 10, 20, 30 years). If the insured passes away during this period, the nominee receives the sum assured. No maturity benefits are paid if the policyholder survives the term.

No. Only plans like Endowment, Whole Life, and ULIPs offer maturity or survival benefits. Term insurance offers only death benefits unless it has a return-of-premium (ROP) feature.

A common rule is 10 to 15 times your annual income. You should also consider liabilities, future goals (children's education/marriage), and lifestyle needs of your family.

Yes. Premiums paid are eligible for tax deductions under Section 80C up to ?1.5 lakh annually. The maturity or death benefit is also tax-free under Section 10(10D), subject to policy conditions.

Yes. Most Indian life insurance companies allow Non-Resident Indians (NRIs) and Persons of Indian Origin (PIOs) to purchase life insurance policies, subject to documentation and underwriting norms.