What is Life Insurance?
Life Insurance Policy
Life Insurance
A life insurance policy is a type of insurance that provides coverage against the unexpected death of the policyholder or after a set-period of time when the policy matures. 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.

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 – Each insurance policy is in affect for a specific period which can be chosen when purchasing the policy. This is called the term, and it could vary based on the type of policy chosen.

Life Insurance in India
Approximately 22,500 people lose their lives each day in India. This essentially means that 940 people die each hour. While Life and Death are a parcel of life, the loss of a loved one can leave a void which might never be filled. A life insurance policy helps fill certain aspects of this void, ensuring that the financial health of the insured’s family is taken care of.

Life Insurance in India has yet to become popular among the masses, with the total insurance penetration in India being just 3.49% as per the Economic Survey 2018, with life insurance accounting for 2.72%. Non-life insurance accounts for 0.77%. Given these numbers it is easy to understand that a majority of our population is not covered, leaving millions of Indians unprotected.

Why is Life Insurance Important?
Given the stress associated with our daily life, we often come across cases of people meeting an untimely end, often leaving entire families shattered after their demise. Here are three main reasons why one must consider investing in a life insurance plan.

Peace of Mind – Peace is something we all run after, with only a few people succeeding in ever finding it. Purchasing an insurance plan can provide a certain amount of peace, knowing that the welfare of your loved ones is taken care of in case of any unfortunate event. This enables one to continue with life, providing an opportunity to live to the fullest without worrying about what the future holds.
Financial security – An insurance plan takes care of any financial requirements the nominee/beneficiary could have. In case of unpaid of loans that the insured might have had, the policy provides sufficient funds to the nominee to pay it back.
Additional income – Certain life insurance plans offer an additional source of income to the insured during his/her lifetime. It helps them meet their long-term financial goals.

Understanding How Life Insurance Works
Life Insurance Plans
Life Insurance Plans
It isn’t hard to understand how life insurance works, with insurers aiming to simplify the entire process to generate more interest in this product. The steps below elucidate how exactly life insurance works.

Determining one’s need – Before selecting an insurance plan, it is imperative to determine your financial needs and those of your family. This will help in arriving at an adequate sum assured.
Choose the insurer and policy – The next step involves choosing a policy and the right insurance provider.
Pay the premium – Once the policy is chosen the individual is expected to pay the premium amount. In case of regular premium payment policies, the premium should be paid at the agreed upon frequency.
Avail the cover – The insured individual is covered for the period chosen by him/her, subject to payment of the premium.
On death – In case of demise of the policyholder/life insured during the policy period, the insurer will pay the sum assured. This amount is paid to the nominee.
On survival/maturity – On survival of the life insured until maturity, a maturity benefit might be payable to him/her. This depends on the policy chosen and whether or not it has a maturity benefit under it.
The policy will cease to exist when the death benefit is paid. Note that certain policies provide an option of cover to the spouse of the insured, wherein the policy will cease after the death of the spouse.

Benefits of Buying a Life Insurance Plan
Purchasing a life insurance plan comes with a range of benefits, with the primary ones highlighted here.

Peace of mind – Most of us live in stressful environments, with our lifestyle and health taking a beating due to this. The added burden of what the future might hold is bound to increase this stress, which could lead to illnesses and/or breakdowns. Purchasing an insurance plan provides peace of mind, enabling us to continue with our lives without having to think about what could happen in the future.
Protects interests of family – A number of us work to provide the best for our families. A good life insurance plan ensures that the family of an insured individual is financially taken care of even after his/her death. One can purchase a policy to fund the education of a child, provide money for the wedding of a loved one, etc.
Savings – While a life insurance plan might not be intended towards inculcating the habit of saving, it can help one save money for the future. Certain policies offer returns which are linked to the market, while other offer bonuses on maturity.
Tax benefits – Investing in a life insurance plan helps one save tax. Individuals can avail tax benefits or tax rebates under various sections of the Income Tax Act. While there is a limit on the deductions permitted on premiums paid, the amount received as a death benefit does not attract any tax.
Added income – Insurers offer additional benefits to individuals looking to purchase a life insurance plan. A pension plan helps one get regular income after retirement. Similarly, there are other plans which offer periodic payouts.
Loan – One can avail a loan against a life insurance plan. This depends on the policy in force and could vary from insurer to insurer.
Planning – A life insurance plan helps one plan for the future. One should take various scenarios into account before buying the policy.
Offsets liabilities – Any liability which an insured individual has is likely to be transferred to his/her family after his/her death. A life insurance plan offsets these liabilities, providing funds to repay any outstanding debt, ensuring that the family is not plunged into further darkness.

Benefits of Credit Life Insurance
Protects your dependents i.e. your family like heirs and spouse from financial liabilities in your absence.
Protects your assets from liquidation to settle your outstanding debts or loans.
Policies are available at affordable premiums while offering coverage throughout the loan tenure.
You have the facility to choose the premium payment term (PPT) option as per your capacity to pay.
Under group credit life insurance, you also have the option to get coverage for joint borrowers on a proportionate basis.
Policyholders can enjoy tax benefits under Section 80C and Section 10(10D) of the Income Tax Act, 1961.
A few insurers offer a discount on high sum assured.
Offers peace of mind by paying off the outstanding loan amount upon the demise of the insured member/borrower.
More than anything, the lender is protected from defaults in loan repayment or lending/credit risk.
Eligibility for Credit Life Insurance
The entry age for this type of insurance policy is 18 to 65 years. It varies from insurer to insurer.
The exit age i.e. the maximum age up to which coverage is offered is 75 years. It varies with insurers.
This type of policy is ideal for those who have taken mortgage loans like home loans, loan against property, and so on.