WHAT IS LIFE INSURANCE?

Life insurance policy is a contract between an insurance policy holder and an insurer, where the policy holder pays an amount known as premium for a specified duration & the insurer promises to pay the Sum Assured to the nominee on death of the policy holder in the specified period.

Life insurance is a protection + savings financial tool that one can use to achieve long term financial goals of life and to protect the financial well-being of family against risks of untimely death. Life Insurance is that integral part of financial planning that secures the family’s future. It is important to take life insurance on the earning member(s) of the family so that in the event of his/her untimely death, future expenses of family can be managed.

“The woods are lovely, dark, deep but I have promises to keep and miles to go before I sleep.” - Robert Frost

Life is valuable and so are the promises we make in them. Life is full of dreams and aspirations – not just ours but also of our loved ones. We have responsibilities to fulfil. Responsibilities that can be fulfilled with the right tools and planning.

Let us understand in simple terms how life insurance works:

• When one buys a life insurance policy, he/she becomes the Life Assured or Insured to the extent of the Life Cover or Sum Assured selected. At this point, he/she will also select the Nominee or Beneficiary who will receive the benefit in case of his/her untimely death.
• The insurance company that sells the life insurance policy is the Insurer (Example: ICICI Prudential Life Insurance).
• Life Cover or Sum Assured is the amount that the Insurer will pay to the Nominee upon death of the Life Assured.In case of some policies, if the Life Assured survives the policy term, the Insurer pays a certain lump sum of money also known as the Maturity Amount.
• Payments called Life Insurance Premium have to be made to the Insurer. These payments can be on a regular basis or just once, also known as the Payment Term.

Now let’s see an example:

• Mr. Kumar (Insured) pays ICICI Prudential Life Insurance (Insurer) an annual amount (Life Insurance Premium) over 5 years (Payment Term) to make sure (Insure) that his wife (Nominee) gets a certain assured sum of money (Life Cover) if something unfortunate were to happen (his demise) before the contract (Life Insurance Policy) expires after 10 years (Policy Term or Maturity).
• Depending upon the type of policy, if Mr. Kumar (Insured) survives till the end of 10 years (Policy Term), then he gets a certain sum of money (Maturity Amount). In some types of policies there is only a Life Cover payable on death (no maturity amount).



Life insurance not only covers the risk arising out of the unforeseen event of death of the earning family member(s), but also gives additional benefits like savings, or funds accumulated over a period of time and tax benefits. A carefully planned and bought insurance plan from a trusted company can help one get long term risk cover plus savings: dual benefits from one solution.