What is Life Insurance? Benefits, Types & FAQs

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What is Life Insurance?

What is Life Insurance?
  • 10th Jun 2022 |
  • 33,740

Life is precious, but the acts are uncertain. It is impossible to analyse what the next step of your life would be. When you think about life and its numerous phases, all you want for yourself and your loved ones is a tranquil and secure future. You want children to be safe with or without you, so you start making plans for that, ensure that they are financially safeguarded, look into their education, and take care of your spouse and parents. You may do this by looking at various types of life insurance plans, reading about them online, or speaking with insurers or people who have life insurance to gain a better understanding of what is life insurance and how does it work. Let us delve a little deeper into this topic.

What is Life Insurance?

Life insurance is a financial instrument that provides life cover against the risk and offers the opportunity to grow up the savings for future expenses. A life insurance policy is especially beneficial for those who have minor children, children with special needs, or for all those who want to secure their family’s future during any uncertain incidence. It is advisable to start an early life insurance policy as the premium amount keeps on increasing with age or if the individual has pre-existing medical conditions. There are different kinds of insurance policies available to suit your financial requirements like term insurance, endowment plan, money-back insurance policy, ULIP and many more.

Benefits of Life Insurance

Now that you know what life insurance means, let’s take a look at its benefits:

Risk Coverage

In case you pass away, the beneficiary of the policy will get a lump sum amount to secure their future, thereby eliminating the need to be dependent on someone else. By enrolling for this policy, you will be covering the risk of your family members that would otherwise occur if the bread earner of the family meets with an unexpected death.

Tax Benefit

Applying for life insurance can help you save taxes. The premiums paid towards insurance can be claimed for income tax deductions under Section 80C of the Income Tax Act, 1961. This reduces your taxable income and aids you in obtaining a life cover instead.

The claim amount received against the life insurance policy is exempted under the Section 10 (10D).

Loan Option

Insurance companies allow you to get a loan against life insurance policy if you are in need. It has lower interest rates when compared to a personal loan and is much quicker in terms of processing. However, the option is available on selected policies. If you need a loan, you can then use your life insurance policy as collateral.

Health Cover

Life insurance cover expenses related to illnesses or hospitalisation, thus freeing you from the burden of medical bills.

Variety of Policies

There are several varieties of insurance policies available to help you secure your future. You can choose any depending on your needs and purpose.


This option enables you to add extra perks to your policy. The insurance rider options can cover critical illnesses, disability, waiver of premium, accidental death benefit and much more.

Guarantee of Fix Return

Life insurance policy guarantees that you get a fixed amount after a specified period of time. For this, you must thoroughly check the structure, terms and conditions of different life insurance policies and select the one that fits all your needs.

Immediate Expenses after Demise

Life insurance will help your family cover a part of essential expenses immediately after your demise and thus stay financially secure.

Types of Life Insurance

Below mentioned are some of the life insurance policies that are available in the market:

Term Insurance

Term insurance provides life cover in the event of your demise and doesn’t have any maturity benefits. This is the simplest form of insurance and is cheaper than most available options present in the market. However, no claim for the policy can be made if the insured person survived till the end of the policy period.

Endowment Plan

An endowment plan is similar to term insurance, but the only difference is that the lump sum amount is paid out even if you survive the maturity period. The policy offers insurance benefits along with saving benefits. In case of the sudden demise of the policyholder, the endowment policy guarantees that along with the sum, a participation profit will also be paid.

Unit Linked Insurance Plan (ULIP)

ULIPs or Unit Linked Insurance Plans invest some part of your premium towards life insurance and the rest into a financial instrument. The policy has a lock-in period of 5 years and can be continued even after the lock-in ends. You can also choose where you want to invest according to your risk appetite.

Whole Life Insurance Plan

The whole life insurance plan covers you throughout your life, where you pay the premiums for a stipulated period. The corpus is paid out to your family in case of death and does not have a fixed validity. This plan is perfect if you have financial dependents. The overall process is simple and can be done online.

Money Back Policy

Money Back Policy provides life coverage throughout the policy term and also provides regular payments for survival. The payment made is a percentage of the sum assured, which is given during the plan tenure and the rest of the sum assured is paid out on maturity of the policy. In case you pass away during the tenure, the sum assured is paid regardless of the payments made to you before. Unlike other life insurance policies, this policy offers you money during the policy period and is quite expensive in comparison to other policies.

Annuity Pension Plan

Pension plan involves paying a lump sum amount to the insurance company, where the payments are sent out immediately on a regular basis or in a lump sum form. The wealth can also be left to accumulate according to your risk appetite.

Why Do You Need to Buy a Life Insurance Policy?

Though life may seem smooth when you are younger, there could be some health issues in the future that might require medical aid. Also, no one can predict their life span and for how long they will live with their loved ones. If something were to happen, you wouldn’t want your family to wind up paying your loans and clearing the debt. The concept of life insurance is to secure your family’s future and help them sustain themselves through the tough times. It leaves them with enough wealth to be independent and lead a comfortable life.

What Should my Life Insurance Cover Be?

Before making a final decision, it is important to cover the following aspects to select the best coverage for you. Keep scrolling through to know the details:

Age Factor

Although the age limit for life insurance is a critical criterion for selecting the amount of coverage you require, it should not be used as an excuse to put off getting a policy. Your age and health will determine not just the amount of insurance you should get but also the length of time for which you should retain it.

Life Goals

The biggest goal of life is to acquire an adequate financial assistant. Life insurance aims to provide much-needed financial backup to your family in case of unexpected emergencies or demise.

Lifestyle & Family

If you want to carefully prepare for your family’s future and lifestyle, it is recommended that you select the finest insurance policy that meets your demands.

Pending Debts

After you pass away, your loved ones can use the insurance proceeds to pay off debts such as college loans, vehicle loans, credit cards, and personal loans. If you owe any of these bills, you should purchase comprehensive insurance coverage.

Budget Bracket

Your life insurance coverage will lapse if you are unable to pay the premiums. Because a more comprehensive life insurance policy will require a higher premium, choose a plan that matches your budget.

Estimated Working Years

The major aspect of retirement planning is to get done with financial responsibilities during the working years. Ensure that the insurance coverage you choose should correspond with the premium amount you can easily pay during the working years.

How to choose Life Insurance?

Life Insurance plans make dealing with life’s volatility much easier in terms of financial stability and security. Your life insurance policy is determined by your financial objectives and responsibilities, debts, loans, and the needs of your family in the event of your death. Hence, before deciding on the ideal amount, you must analyse all conceivable factors. Let’s look at how we can get one of the greatest life insurance plans to protect your family’s future.

  • It’s vital to examine life insurance options online simply because there are so many out there. You can pick between life insurance kinds that require a single premium payment or monthly premium payments, depending on your needs.
  • Examine the plan’s coverage before purchasing it. Insurance riders can be added to cover additional needs.
  • You should purchase your policy from a trustworthy insurer who is approachable. The insurance firm must have a high claim settlement ratio and a respectable ranking.
  • Check the list of hospitals covered by your life insurance to receive treatment in a facility that is appropriate for you.

Now that you know everything about life insurance, it is extremely important to begin with this policy from today itself and keep you and your loved one’s future secure. Whether you are single, married or have kids, you need a life insurance plan to stay protected.

Kotak e-Term Plan

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Ref. No. KLI/22-23/E-BB/492


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