In this day and age, when everyday living seems perilous and threats are around every corner, you may find yourself wondering if you should protect your loved ones with a suitable life insurance policy. A good choice, no doubt, but there is always the lingering question of what is life insurance and how it helps.

Let’s find out together.

What is life insurance?

Life insurance is a tangible means of ensuring that if an untimely death befalls, your family or loved ones won’t be stranded. A life insurance plan is a contractual agreement between an insurance provider and you or a member of your family. The terms of the contract are quite simple.

The insurance provider and the insured, which is you or a loved one, decide on a sum assured for a specified period of lifespan. Based on these parameters, you and the insurance provider agree upon a premium rate that you must pay regularly.

Simply put, you and the insurance provider discuss monetary expectations for your family or loved ones, whoever you opt for as beneficiaries. In the event of your untimely death as the life insurance policy holder, your beneficiaries will receive a lumpsum amount of money to help sustain their lifestyle.

The life insurance policy helps them pay for major expenses including but not limited to funeral costs, outstanding loans, children’s education or wedding, mortgages, or even starting a new career path. Basically, it is a sum of money on which they can rely during their time of grief or when they lose the primary wage earner in the family.

What are the different types of life insurance?

Now that you know the basic concept of what is life insurance in its essence, let’s take a look at the different types of life insurance plans that are suitable for different people based on their needs. Much like all the necessities in life such as clothes, home, and dietary plans, one size does not fit all. Based on your financial needs, you can choose from the following types of life insurance plans:

Term Life Insurance –

This is one of the most popular types of life insurance plans that are valid for short and long terms based on your preference. The concept is very simple.

You choose a tenure for your life insurance and pay the premium for a substantial sum assured. If an unfortunate death befalls you during the tenure of your policy, then your beneficiaries receive the entire sum assured. If you survive the tenure of your term insurance plan then you won’t receive any money, unless you opt for Return on Premium add-ons with your policy. With ROP, the insurance provider returns all the premiums that you paid over the years.

Endowment Plans –

These are excellent options as types of life insurance that help you earn through investments. Basically, you agree upon the sum assured, tenure, and premium. In the case of unfortunate demise, your beneficiaries receive the entire sum assured. However, if you survive the tenure of your endowment life insurance plan and the policy matures, you receive the premiums back along with additional bonuses as agreed upon in the initial contract.

Money back policy –

Speaking of types of insurance life insurance with investment options, money-back plans are even better. Here, along with the sum assured, tenure, and premiums, you also get to choose periodic intervals during which the insurance provider pays some of your premium back in lumpsum amounts.

You can choose intervals of a few months or a few years. At each interval, the insurance provider will return a part of your premiums invested in their life insurance plan so you earn during the course of your life. In case of untimely demise during the tenure of your policy, your beneficiaries still receive the entire sum assured. However, if the plan matures, then you get back the sum of money paid towards premiums, minus the amount paid back at regular intervals.

ULIPs –

These are yet another types of life insurance that helps you earn while you live as well as pays a death benefit. ULIPs are Unit Linked Insurance Plans in which the insurance provider helps you invest your premiums in the market and earn substantial returns on investment.

You decide on the sum assured, tenure, and premium first, then move on to discussing the markets that befit your risk appetite. You can invest in debt or equity, or diversify your investments. Once the basics are agreed upon, you pay your premiums and the insurance provider helps invest part of that sum into the current market.

Once you start earning interest, you can withdraw some of your money when you are in need. In case of demise, your beneficiaries get the sum assured as well as pending interests earned on your investments. You can also reclaim your premium value along with the bonuses if the ULIPs mature.

Whole Life Insurance –

These are the types of life insurance that cover you for the entirety of your life. You can choose the tenure for 99-100 years. In case of demise, your beneficiaries receive the sum assured as a death benefit. Some whole life insurance plans also pay a maturity benefit.

Retirement Plan –

These are the types of life insurance plans that you can get to secure your golden years. You can choose from either the immediate annuity plan or the deferred plan.

In the immediate annuity plan, you pay a lumpsum amount of money and purchase the policy. Then the insurance provider continues to pay you a specified sum of money at regular intervals.

With the deferred annuity plan, you can pay the premiums like other life insurance plans. After retirement, the insurance provider either pays a lumpsum amount or a specified amount every month, much like a pension plan.

Every Indian Family has a primary wage earner who helps support one or multiple households. In the event of their death, the family is left stranded. That is why it is so important to have a viable life insurance plan. It helps support your loved ones in their time of absolute need and despair.

Conclusion

So, what is life insurance really?

Well, it literally means to put a warranty on your lifespan. A life insurance policy is a financial tool that helps attach monetary value to your life so that if the unthinkable happens, your loved ones will have a substantial nest egg on which they can fall back.