What is Life Insurance?

Life is unpredictable. It takes only an instant for the whole family’s world to turn upside down when the family’s sole breadwinner dies unexpectedly. It strains the family emotionally and burdens them financially as they have nowhere else to go. During these uncertain times, it is best to be prepared for the worst.

What is a life insurance policy?

The life insurance policy is a contract/agreement between the person who purchases the policy (called a policyholder) and the insurance provider to provide a range of benefits to the nominees in case of the policyholder’s untimely death.

What are the different types of life insurance?

Many types of life insurance policies exist in India. The most common types of life insurance plans are as follows.

  • Term life insurance plan

    These have low premiums and need to be purchased for a particular period. They provide life cover, don’t provide maturity benefits, and are only beneficial if an event occurs.

  • Endowment plan

    This is a mix of savings and insurance in one. It ensures that the policyholder receives a lump sum if he makes it to the maturity date.

  • Child plan

    It can help fund your child's education or can help when they need to get married. The policyholder can get a lump sum or an annual sum.

  • Unit-Linked insurance plan (ULIP)

    The ULIP mixes investment and life insurance in one. With the premium that you pay, one portion is used as an insurance cover while the other is an investment in funds.

What does life insurance cover?

A life insurance policy provides death benefits to your beneficiaries as they get a sum of money in the case of a policyholder’s untimely death due to illness, accident, or disease. It covers expenses, debts, and education among others.

What are the benefits of life insurance?

A life insurance policy benefits the policyholder and his/her family for the following reasons.

  • Promotes long-term savings

    A life insurance policy enables you to save for the long term as you pay monthly premiums. Some life insurance policies provide monthly payouts.

  • Effective investment planning

    Life insurance enables you to plan your investments properly. For example, many providers offer Unit-Linked Investment Plans so that you can get the most out of your investments.

  • Gives financial security

    Life insurance protects you and your family from facing financial issues as it ensures you can withdraw a certain amount when required.

Points to consider for life insurance

When selecting and applying for a life insurance policy, make sure you do the following.

  • Research

    Many types of life insurance policies are available so do thorough research about which ones meet your requirements the best. This ensures you can make the most of your policy.

  • Read fine print

    You must read the fine print before you agree to purchase a life insurance policy to ensure you are aware of all the specific details.

  • Premium payment

    How you choose to pay your premium is crucial because you can pay annually, monthly, semi-annually, or quarterly. It is best to choose the ECS payment method for automatic deductions.

  • Consider lock-in period

    A lock-in period enables you to know the time until which you can switch your policy. You can change your plan before the lock-in period starts.

Key Takeaways

Financial experts recommend getting a life insurance policy even though it is not mandatory as it provides a range of benefits for the policyholder and his/her family. By researching well you can find the life insurance policy that suits your long-term requirements.


As per Section 80C of the Income Tax Act, 1961, you can get a tax deduction of up to Rs. 1.5 lakh.

A nominee is an individual who gets the assured sum as stipulated in the policyholder’s life insurance policy in the case of his/her untimely death.

It is possible to add more than one nominee but the pay-out will be equally divided among all the nominees.

There is no set rule that dictates the maximum age to purchase life insurance as it depends entirely on the provider.

The nominee needs to send a claim intimation to the provider instantly and should have all the necessary documents.

The cost of life insurance depends on factors such as your age, medical conditions, premium payment, and add-on riders.

Yes, you may surrender your insurance plan, choose a loan against your insurance policy, or cash your policy through withdrawals before death.

Experts recommend you buy life insurance as early as possible for low premiums.