InvestorQ : What is life insurance?
Karim Sahu made post

What is life insurance?

Anusha Savla answered.
3 years ago

Life insurance is a financial cover for a contingency linked with human life, like death, disability, accident, retirement, etc. It can also be defined as a contract, in the form of a policy, wherein an insurance provider undertakes to provide financial coverage to an individual in exchange for a payment over regular periods of time called a premium.

The insurance provider will offer a lump-sum amount to the beneficiaries or nominees of a policyholder in case of his/her untimely death. This payment will include the sum assured, which is the amount you have purchased the policy for, and the minimum amount of money that the company will pay you before adding bonuses.

Apart from the death benefit, a life insurance policy also offers maturity benefits in the form of payouts in case the policyholder survives the entire policy term. In addition, life insurance policies are also known for delivering tax benefits under Section 80C of the Income Tax Act, 1961.

Human life is subject to risks of death and disability due to multitude of reasons either natural and accidental. When human life is lost or a person is disabled permanently or temporarily, there is loss of income to the household.

While human life cannot be valued, a monetary sum can be determined based on the loss of income in future years. Hence, in life insurance, the sum assured (or the amount guaranteed to be paid in the event of a loss) is by way of a ‘benefit’.

Life insurance products provide a definite amount of money in case the life insured dies during the term of the policy or becomes disabled due to any kind of an accident.