A type of insurance, which is used to provide a coverage in terms of money to the life of human being against any risk by exchanging a fee is called life insurance. In this article you will see the details about life insurance. Before knowing about life insurance, we have to know what is insurance and its various types shortly.
Insurance is defined as a financial instrument that provide a risk coverage against any loss occurred what one could insure. It is an invisible product and pays out a lump sum of money either on the loss or damage to replace it in a certain period of time.
It is also defined as one of the most effective risk management financial tool that provide protection to the thing one could insured from financial losses. The primary usage of insurance is to provide risk coverage against a contingent risk or any uncertain loss.
Insurance is offered by an insurance company that they collect a certain amount of money from the people and provide an assurance for the coverage of the insured thing with some terms and conditions.
Hence, insurance policy is a contract made between the insurance company and the policy holder to provide claims to the insured in terms of loss of the insured thing in exchange of a premium.
The person or a company who buys an insurance from an insurance company is called as policyholder. For managing a risk, the policy holder transfers their potential loss cost to the insurance company by exchanging a fee, called as premium.
Human life is made up of the happening of unexpected and uncertainties. So, they may not have enough money for the uncertain loss or damage of the things to replace or compensate it. Here the way people will transfer their loss to the insurance company through a contract called insurance policy.
Categories of Insurance
There are two major categories of insurance in the insurance industry. Under that categories there are many types of insurance available to insure all the things that what people having themselves. The categories of insurance are as follows.
- Life Insurance
- Non-life or General Insurance
In these two categories of insurance contains many combinations of coverage and benefits that helps people to avail it according to their need.
1) Life Insurance
Life insurance is a contract between the life insurance company and the life insured, where the insurer promises to pay a sum of money or how much the life insured took a coverage himself to the designated beneficiary, upon the death of insured person.
It is one of the few investment options that provide financial security to the people along with maturity benefit, including tax benefits. Even though having these much of benefits, the primary objective of life insurance is to provide financial security or income replacement for their family in the event of life insured’s death.
Human life is made up of the happening of unexpected and uncertainties. So, it is important to the people, who has a financial dependent would benefit from investing in life insurance.
Life Insurance is not only providing security to the insured life, beyond that for achieving their life goals it plays an important part in their life. For that life insurance is designed in various types to fulfill the different goals in different stages of their life even the life insured is alive or not. The different types of life insurance are as follows.
The main objective of the insurance is fulfilled in this term insurance by providing life cover in case of death of a policy holder. The insurance company will provide the death benefit amount to the beneficiary or nominee mentioned in the policy document. The insurance company will provide life coverage in a specified term mentioned in the policy document.
The core objective of term insurance is to provide financial security to the policyholder’s dependent in the event of his death. If the policyholder survives till the end of the policy term, the policy will cease after the end of the policy term and no more coverage or death benefit provided.
Only the term insurance can provide huge risk benefit in an affordable cost. Generally, an individual can avail a life coverage about 20 times of their annual income.
The premium of the term insurance varies depends on the age, gender, sum assured and the health conditions of the life to be insured. The insurance company could provide life coverage to the people who having some health problems too with the higher premium.
Unlike term insurance, endowment plans having maturity benefit along with the life coverage. If the policy holder survives till the end of the policy term, policyholder will get a lumpsum of money as maturity benefit. In some type of endowment policy, the policy holder may get bonus along with maturity benefit. However, in the event of the death of policyholder during the policy term, the nominee will get the death benefit.
Whole Life Insurance
It is a kind of term insurance but it provides only life coverage through the entire life of the policyholder. There is no specific policy period of this type of insurance and there is no maturity benefit available in it. The beneficiary will get the coverage amount only after the death of the policyholder. In some instance, if the policyholder survives till their age of 100, he will get some maturity amount.
Unit Linked Insurance Plan
In this type of insurance policy, the policyholder can get a benefit of both life coverage and investment returns. The premium paid in this policy has used to provide the coverage of the life to be insured also invested in to the share market depending on the risk profile of the customer. In this insurance there is lock-in period for 5 years and there are good returns for long term policies. Maturity benefit in unit linked policy is not guaranteed and the returns are market linked.
It is a type of endowment policy but as the name suggests, the policy holder will get a part of sum assured during the policy term at regular intervals. The policyholder will get maturity benefit at the end of the policy term if the policyholder survives. Otherwise, the nominee will get the life coverage benefit in the event of the death of policyholder in the policy term.
Child Life Insurance
This type of policy is specially designed and offered to build a wealth for the policyholder’s child to fulfill the goals, education, marriage and any other events. Once the children attain maturity, the policyholder will get a part of benefit amount or maturity as per the conditions of the policy contract. In some kind of policy, the policyholder will get maturity amount as installments in a period of time. In the event of the policyholder’s death in a policy period, the nominee will get the death benefit and also the maturity benefit at the end of the policy term.
This type of policy is used to build a retirement corpus to live worry free life once a policyholder attains their age of 60. At the time of maturity of the policy, the policy holder will get the benefit as lumpsum or in installments through a period of time. In the event of the death of the policyholder before the end of the policy term, the nominee will get the death benefit.
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