What is Life Insurance?Life Insurance, in simple terms, is a contract which is signed between an individual and an insurance provider, wherein the insurance provider guarantees to pay a certain sum of money (sum assured) in case of the insured individual’s death. In order to avail this protection, the insured pays a certain amount as premium towards maintaining the policy. It is nothing but a safety net which provides financial security/protection against loss of life. The primary purpose of a life insurance policy is to protect the financial interests of the insured’s family. While one might think that this is a recent concept, studies have shown that it has been around for centuries, with different variations of insurance dating back to 1750 BC. There are 3 basic aspects related to life insurance, namely:
- Premium – An individual is accorded cover only if he/she pays a certain sum of money towards the policy. This is termed the premium. One can consider it to be the initial investment which offers returns in the future.
- Death Benefit/Sum Assured – This is the money which the insurer assures to pay to the nominee/beneficiary of the policyholder after his/her demise. This varies based on a number of parameters.
- Term – An insurance policy provides protection for a certain period of time. This is called the term, and it could vary based on the type of policy chosen.
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