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Basics of Life Insurance
What is life Insurance?
Life insurance is a contract for payment of money to the person assured (or to the person entitled to
receive the same) on the occurrence of the event insured against.
Usually the contract provides for -
payment of an amount on the date of maturity or at specified periodic intervals or at death, if it occurs
earlier.
periodical payment of insurance premium by the assured, to the corporation who provides the insurance.
Who can buy a life insurance policy?
Any person above 18 years of age, who is eligible to enter into a valid contract.
Subject to certain conditions, a policy can be taken on the life of a spouse or children.
What is a Whole Life Policy?
When most people think of life insurance, they think of a traditional whole life policy. These are the simplest
policies to understand: You pay a fixed premium every year based on your age and other factors, you earn
interest on the policy's cash value as the years roll by, and your beneficiaries get a fixed benefit after you
die. The policy takes you into old age for the same premium you started out with. Whole life insurance
policies are valuable because they provide permanent protection and accumulate cash values that can be
used for emergencies or to meet specific objectives. The surrender value gives you an extra source of
retirement money if you need it.
What is an Endowment policy?
Unlike whole life, an endowment life insurance policy is designed primarily to provide a living benefit and
only secondarily to provide life insurance protection. Therefore, it is more of an investment than a whole life
policy. Endowment life insurance pays the face value of the policy either at the insured's death or at a
certain age or after a number of years of premium payment.
Endowment life insurance is a method of accumulating capital for a specific purpose and protecting this
savings program against the saver's premature death. Many investors use endowment life insurance to
fund anticipated financial needs, such as college education or retirement.
Premium for an endowment life policy is much higher than those for a whole life policy.
What is a Money Back policy?
This is basically an endowment policy for which a part of the sum assured is paid to the policyholder in the
form of survival benefits, at fixed intervals, before the maturity date. The risk cover on the life continues for
the full sum assured even after payment of survival benefits and bonus is also calculated on the full sum
assured. If the policyholder survives till the end of the policy term, the survival benefits are deducted from
the maturity value.