What is a Life Insurance Policy?
A life insurance policy is a legal agreement between an individual (the insured) and a life insurance company. Under this contract, the insurer promises to pay a specified sum to the designated nominee or beneficiary if the insured passes away during the policy term. In some cases, life insurance policies also provide maturity benefits, where the insurer pays the insured a specified amount if they outlive the policy term. In return for this coverage, the insured pays premiums, which can be made monthly, quarterly, annually, or as a one-time lump sum.
How Does Life Insurance Work?
- Choosing a Policy: The first step is selecting a life insurance plan that aligns with your needs, whether for financial protection, investment, or savings.
- Premiums: The insured pays a set premium to keep the policy active, which can be structured as monthly, quarterly, yearly, or lump-sum payments.
- Tenure: The policy tenure is the period during which the insurance coverage is valid, selected when purchasing the policy.
- Death Benefit: This is the assured sum paid to the beneficiary if the insured dies within the policy tenure.
- Maturity Benefit: Some policies offer maturity benefits that the insured receives if they survive the policy term. However, not all plans provide this, such as term insurance, which is designed solely for protection.
Types of Life Insurance Plans
- Term Insurance Plans: Ideal for individuals who are the primary earners in their families, offering comprehensive coverage at affordable rates. These plans ensure financial stability for your family in your absence but typically do not include maturity benefits.
- ULIPs (Unit Linked Insurance Plans): Combine investment with insurance, making them suitable for those seeking returns along with life coverage.
- Savings Plans: Provide both life insurance coverage and a savings component, offering maturity benefits at the end of the policy term.
- Retirement and Pension Plans: Designed to provide financial security post-retirement, ensuring a steady income in later years.
Benefits of Life Insurance Policies
- Death Benefit: This payment is made to the nominee upon the policyholder’s death during the policy tenure. To claim it, the beneficiary must file a claim and submit necessary documents, including the death certificate. After verification, the insurer pays the death benefit.
- Maturity Benefit: If the policy includes a maturity benefit and the insured survives the policy term, the benefit is paid to them upon submission of required documents.
Choosing the right type of life insurance depends on individual financial goals, whether it’s pure protection, investment growth, savings, or retirement planning.