Life Insurance - Definition, Scope & Why It Matters

Introduction

Insurance is an agreement between the firm and policyholder for a specific purpose and tenure. Life Insurance is a contract between you and the insurance company wherein the latter offers financial protection to the policyholder/nominees in return for a fixed premium payment periodically.

Under Life Insurance, the company pays a sum assured to the policyholder or nominees if the policyholder meets with an untimely demise. The amount of sum assured is previously agreed upon by the insured and the insurer. Insurance companies provide different types of policies to meet the varying requirements and needs of policyholders. Let us understand what is Life Insurance in-depth:

Life Insurance Definition

Life Insurance is a contract between an insurer and the policyholder. This policy has been valid for the long term. It mitigates the financial risks of your life.  Neither can one plan the future ideally nor predict what happens tomorrow. Through a Life Insurance Policy, you can secure the future of your loved ones. The insurance company offers financial help to your loved ones under unfortunate events.

There are two types of plans to opt from – protection and savings and pure protection. Protection and savings plan assists in planning for long-term life goals such as buying a home and a child’s education. This is besides the life cover. The pure protection plan secures the future of your family by providing a lump sum amount in case of your untimely demise.

Alternate Read: Planning To Buy Life Insurance Understand Your Needs First before

Let us consider an example here:

Abhay has a Life Insurance Policy of Rs. 25 lakh, and he pays an annual premium over the tenure of 10 years to ensure that his wife gets the sum assured in case of his untimely demise during the 25 years of coverage. Now, in the event of the unfortunate death of Abhay before the maturity period, Abhay’s wife receives Rs. 25 lakh. On survival, Abhay gets the sum at the maturity of the plan.

It is crucial to know the concepts of Life Insurance and choose the sum assured and tenure accordingly. Life insurance Policy does not cover the risk arising from an unfortunate event but also provides additional benefits like wealth creation and tax benefits. It is crucial to choose the right Insurance Plan from a company that gives long-term coverage and savings.