Life Insurance: Definition, Types and Benefits

What is Life Insurance?

Life insurance means that on the death of the person who buys the insurance policy, his dependent gets compensation from the insurance company.


If the head of the family dies untimely then it becomes difficult to run the household expenses.  To save the wife/child/parents etc. of the head of the family from financial crisis, it is necessary to take a life insurance policy.  In financial planning, first of all it is suggested to a person to buy a life insurance policy. In life insurance, the life of a person is insured.

Life insurance is the best way to create wealth and secure the future of the family in case of unfortunate death of the policyholder.  The benefits of life insurance can be availed either through “Term Plans” that provide life cover for family security or through “Investment Plans” that provide financial security to meet the financial goals of individuals with help in wealth creation.

Ways to Calculate Life Insurance

  • Most insurance companies say that a reasonable amount for life insurance is six to ten times the amount of the annual salary.
  • Another way to calculate the amount of life insurance needed is to multiply your annual salary by the number of years remaining until retirement.
  • Another method called the standard of living method is applied in which you take the amount the survivors would need to maintain their lifestyle and multiply it by 20.
  • DIME (Debt, Income, Mortgage, Education).  This is meant to be the minimum coverage that will cover family expenses in the event of an untimely death.

Key Features of Life Insurance Policy

Life insurance policy is much more than just providing coverage and there are many features of a life insurance policy.

Death Benefit – In case of untimely death of the life assured during the policy term under the life insurance policy, a sum assured known as death benefit will be provided to the nominee which will help your financial dependents to meet their daily needs and life goals.  Will help.

Investment opportunity – Life insurance can act as an investment opportunity if one chooses to invest in ULIPs, money back and endowment plans as these plans offer the dual benefits of life cover and investment, such plans return on investment  provide.

Tax Exemption – Under Section 80C and 10(10D) of the Income Tax Act, 1961 one can avail income tax benefits by investing in a life insurance policy.

Maturity Benefit – Various life insurance policies offer maturity benefit at the end of the policy term, if the life assured survives the entire policy term.

Collateral for loan – Life insurance policies offer loan against policy facility which can help a person to meet immediate financial requirements such as treatment for a medical emergency or helping a person meet financial obligations.

What are the benefits of life insurance?

There are many benefits when you invest in a life insurance policy.  Life insurance is a financial tool that facilitates an individual to create a safety net for their near and dear ones, in case anything unexpected happens in their life.

1. Financial Security: Offers Financial Security to your loved ones in case of any uncertainty such as death or disability.
2. Secure Your Child’s Future: Securs the educational and various other needs of your child.
3. Insurance With Savings:  Enables you to build a corpus to meet your economic necessities at every stage of life.
4. Retirement Planning: Provides financial independence in your post-retirement years.
5. Tax Advantages: Avail tax benefits against the premiums paid under Section 80C and 10(10D) of the Income Tax Act, 1961.
6. Loan Facility: Avail loan against your life insurance plan to meet any unforeseen situation.

How to choose the best life insurance policy?

With the availability of several life insurance plans in the market, choosing the best one among them is quite confusing.  Considering one factor and ignoring the other can lead to many issues in times of need.  Hence, it is very important to go through each and every aspect before investing in life cover insurance.

Life Insurance Companies

Compare and buy the most suitable life insurance plan from IRDAI approved life insurance companies listed below –

  1. LIC of India
  2. HDFC Life Insurance
  3. ICICI Prudential Life Insurance
  4. SBI Life Insurance
  5. Max Life Insurance
  6. Tata AIA Life Insurance
  7. PNB MetLife India Insurance
  8. Bajaj Allianz Life Insurance
  9. Aegon Life Insurance
  10. Kotak Mahindra Life Insurance
  11. Canara HSBC Life Insurance
  12. Bharti AXA Life Insurance

Life insurance plan

Life insurance is a contract between an individual and an insurance company under which the insurance company promises to provide the sum assured (death benefit) to the policyholder’s family in the event of the policyholder’s unexpected death.  Many plans also offer survival benefits if the insured survives the policy term.  Thus, life insurance provides financial security to an individual and his/her near and dear ones against the uncertainties of life.

Types of Life Insurance Policies

1. Term Insurance: It is the most basic form of life insurance. Simply put, the beneficiary will get the death benefit only if the life assured dies during the policy term. Once the policy matures, the insurance company is not liable to pay any benefits. Term insurance plans are beneficial for those who want to secure the financial future of their family at affordable premiums.

2. Whole Life Insurance: These plans remain in force till the policyholder is alive, provided the necessary premiums are paid. On the death of the policyholder, the plan pays the sum assured and bonus (if any) to the nominee. In simple words, if the policyholder survives the policy term, then the policyholder receives matured endowment coverage as maturity reward under whole life insurance in India. Whole life term insurance can help you leave a legacy for your children.

3. Endowment Plan: Also known as traditional life insurance plans, an endowment policy is a combination of a life coverage plan and a savings plan.  With life coverage, the policyholder can also save his fund regularly for a specified period.  If the policyholder opts out of the policy term, the insurance provider offers maturity benefits to him. Such a policy can be used to build a risk-free savings corpus, and on the other hand, will provide financial security to your family in the event of an unfortunate event.

4. Child Insurance Plan: It is a combination of insurance cover and investment which secures multiple stages of your child.  In other words, it provides financial coverage to your child’s future needs and allows you to plan for his/her future in a better and stable manner.  With a child insurance plan, you can create a corpus to meet all the needs of your child and ensure that your child does not have to give up on his dreams due to any financial crisis.

5. Pension Plan: This plan helps you to financially secure your post-retirement life.  The benefit is paid annually or once after reaching 60 years (depending on the insurer/policyholder).  The plan offers vesting benefits (maturity benefits) if the policyholder outlives the policy term.

6. Unit-Linked Insurance Plan (ULIP): Unit-linked insurance plans offer a combination of investment and insurance.  Under the same, a small part of your money is used for life coverage, while the rest of the money is invested in the market.

7. Investment Plan: An investment plan allows the policyholder to invest small amounts (in a periodic manner) to boost his savings.  The frequency of investment can be different- weekly, monthly and quarterly.  Along with the savings, you get the benefit of insurance coverage.

8. Money-Back Plan: In a money-back plan, the policyholder is eligible to receive a specified percentage of his sum assured at regular intervals.  This type of life insurance is ideal for those who want to invest with the benefit of liquidity.

life insurance riders

Riders are add-ons that provide additional financial coverage to the policyholder.  Some plans come with in-built additional covers, however, generally, riders need to be purchased separately by paying an additional premium.

Having additional coverage adds to the protection for you and your family in case of death, illness or disability.
Popular life insurance riders are:

1. Critical Illness Rider:

Critical Illness Rider benefits policyholders on the diagnosis of any critical illness listed in the policy document.  The rider pays the critical illness sum assured and allows policyholders to focus on their treatment without worrying about finances.

2. Accidental Death Benefit Rider:

With the help of Accidental Death Benefit rider, if the policyholder dies in an accident during the policy term, a percentage of this additional amount along with the sum assured will be paid by the insurance company to the beneficiary.

3. Accidental and Total Permanent Disability Rider:

This rider is applicable when the policyholder meets with an accident and is declared partially or permanently disabled.  The rider pays a predetermined percentage amount and can be relied upon as a source of income.

4. Accelerated Death Benefit Rider:

If the policyholder is diagnosed with a life-threatening terminal illness such as leukemia, cancer, AIDS, etc., this rider will pay a part of the death benefit and can be used for the treatment of the policyholder.

5. Waiver of Premium:

Under this rider, if the policyholder is unable to pay his premiums due to an unfortunate accident or injury, or loss of income due to disability, all future premiums will be waived off, and the policy will continue without any restrictions.

 6. Term Rider: 

Term rider pays a fixed or monthly income to the beneficiary in case of death of the policyholder.  This rider provides additional coverage for death over and above the base sum assured as pre-determined by the insurance company.

7. Surgical Rider: 

The surgical rider assists the insured by providing financial coverage if the policyholder undergoes an unavoidable surgery in India.

Factors Affecting Life Insurance Premium

Life insurance premium is the amount that is paid by the policyholders for a specified period of time and allows them to enjoy life insurance benefits.  One can choose their premium payment mode as per their requirements.

Given below are some of the important factors that are considered by life insurance companies and can affect life insurance premiums:

1. Age: Age is an important factor while calculating the life insurance premium.  As per the insurer’s point of view, a young person is less likely to suffer from age-related illness and pass away prematurely, and is more likely to continue with his insurance policy for years.  This makes younger individuals eligible for lower premiums.

2. Lifestyle: If a person smokes/drinks/leads a stressful lifestyle, he/she needs to pay higher premiums.  This happens because such habits give rise to life-threatening diseases, thereby reducing your life expectancy.

3. Gender: According to some surveys conducted in India, it is proved that women live longer than men.  Because of this disparity, women generally pay lower premiums than men.

4. Medical History: If a person has a medical history of serious diseases or suffers from health problems, then in such cases insurance companies charge higher premiums.

5. Policy Term: The longer the tenure of your policy, the higher the risk for insurance companies.  Hence, short-term life insurance plans have lower premiums as compared to long-term life insurance policies.

What are the documents required to buy life insurance?

If you have decided to buy life insurance, there are certain documents that you need to provide:

1. Age Proof:  Driving License, 10th or 12th Mark Sheet, Birth Certificate, Passport, Voter ID, etc.
2. Address Proof: Electricity Bill, Telephone Bill, Ration Card, Driving License and Passport.
3. Proof of Identification: PAN Card, Passport, Driving License, Voter ID or Aadhaar Card.
4. Income Proof:  Latest Form 16, Salary Slips of last 3-6 months, ITR (2-3 years) etc. CONTINUE…

How to file life insurance claim?

Filing a claim and getting the sum insured can become a very convenient and hassle-free task if a claimant follows all the necessary steps.  Read further to know how a claimant can file a claim in India under the following scenarios:

In case of death of the life assured, the nominee of the deceased will be able to claim in the following manner:

1. Inform the insurer about the death at the earliest with all the important details like time, place and cause of death.

2. Submit the required documents and proofs to the insurance company.  This will also include the death certificate of the life insured along with the claim form provided by the insurance company.

3. If the policy was assigned, the assignor has to provide the documents.  If any other person (other than the nominee or assignee) is filing the claim, he/she needs to submit legal proof of his/her relationship with the insured.

4. If required, the report of the post mortem, hospital and attending doctor has to be submitted.

5. In cases involving police enquiry, an investigation/survey report has to be submitted.

6. Once the investigation is over, the insurance company will accept/reject the claim.  The details of the same will be shared with the claimant.

If the policy matures

If the life assured lives beyond the policy term, he/she is eligible to avail all maturity and survival benefits, provided all premiums have been duly paid.  The procedure for filing a claim is as follows:

  • When the maturity date of the policy is near, the insurance provider will send an intimation to the policyholder along with the discharge voucher (at least 2-3 months prior to the maturity date).
  • The policyholder has to sign the voucher and send it back to the provider along with the original policy bond.
  • In case the policy is assigned to any other person (person/entity), the amount will be paid only to the assignee who gives the