What is a life insurance policy?

Wondering about the meaning of life insurance? A life insurance policy is essentially a contract between an individual and an insurance provider, where the company promises to pay a specified amount of money to the family or beneficiary of the individual, in return for regular payments over a period of time. These payments are known as premium and are usually paid on an annual basis. The individual who buys the insurance is known as the policy holder.

Life insurance assures lump sum amount to be paid to the family if the policyholder passes away unexpectedly. Though money cannot make up the loss, it ensures no financial hiccups to the family even after the demise of the breadwinner.

The life insurance policy provides with the much-needed cover against risk and offers you opportunities to grow your savings It is also an effective tool that enables you to save for future expenses that may occur, such as the higher education or marriage of children.

Life insurance has meaning especially for those with minor children, children with special needs, those who wish to secure the financial future of their family or wish to build savings over the long term.

It is best to buy a policy early, since the premium amount rises with age and if the individual is a smoker or has pre-existing medical conditions

Benefits of life insurance

Here are some of the benefits of life insurance:-

• Tax benefits:– Enrolling for a life insurance policy can guarantee you tax benefits.The premiums you pay towards the policy make you eligible for tax exemptions of up to ₹1.5 lakhs of your taxable income, under Section 80C of the Income Tax Act. The death benefits are also fully tax exempt, under Section 10(10)D of the ITA. 

• Guarantee of fix returns:- Life insurance policies guarantee that you get a fixed amount after a fixed timeline. You need to go through the structure of different life insurance products.Read through the structure and terms and conditions of different life insurance products to choose a policy that best suits your needs. Whatever you choose, you can rest assured that the promised death benefits will be disbursed to the beneficiary, if the information provided by you at the time of enrolling for the policy was accurate.

• Risk mitigation and coverage:- These policies provide the quintessential risk coverage in terms of monetary compensations to mitigate and cover risks after the policyholder’s death.By enrolling for life insurance, you are protecting your family against financial risks that would occur if the primary breadwinner meets an untimely death.

• Provision for loan:- Certain policies provide the option of loan and allow to borrow a sum of money.This means that if you need to take on a loan, for instance, to fund the education or marriage of a child, you can use the life insurance policy as collateral.

• Health expense coverage:- Most of these policies cover the health and treatment expense that may occur.occur if the policy holder falls ill. You can also choose riders to increase the coverage of the insurance policy to protect your finances even while you are alive.

Following are the different types of life insurance policies available today in the market:-