Nature and Scope of Life Insurance – A Comprehensive Guide 2023

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Having a life insurance policy as a security for your family is important, especially if you do not want to see them suffer due to lack of financial support after your demise. In this post, let’s discuss life insurance better for your understanding.

Planning in life is very important. We always plan in advance for every life goal, be it small or huge such as planning meals every day, planning the future of kids, planning vacations and so on. Similarly, planning your finances in advance is also equally important. This is because there are many unpredictable events in life that may appear suddenly, and without monetary backup you may find it hard to deal with such events.

It is a fact that when someone dies nothing can fill the void in terms of the emotional and physical loss. However, financial security in the form of death benefits can go a long way in taking care of your monetary needs and fulfilling your requirements.

If you are looking at careful financial planning, buying life insurance is the first step towards it. So, it is essential for you to understand the nature and scope of life insurance policies to comprehend life insurance meaning and for better investments.

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What is a Life Insurance Plan?

As the name suggests, a life insurance plan insures the life of a policyholder in lieu of a certain amount paid as premium and guarantees a lump sum payout as death benefit to the beneficiary of the policyholder. Thus, if the insured dies during the term of the policy, the insurance company pays the benefit amount to the family/nominee of the policyholder. However, for this the insured has to pay the premium for a particular tenure, which is fixed at the time of buying the life insurance policy.

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Nature of a Life Insurance

The nature of life insurance is such that it protects and fulfills the financial requirements of your loved ones when you are not around to do that.  There are varied types of Life insurance plans available which can be chosen as per different needs of individuals. Some insurance plans allow coverage against life only, while there are others that come with a  saving element as well that can be availed at the time of maturity.

9 Different Types of Life Insurance

Hence, to comprehend the nature of life insurance, it is important to know about all the different types of life insurance plans available.

Let’s take a look:

1. Term Insurance Plans

A term life insurance is the most basic life insurance plan that can be purchased for a fixed term of policy (up to 80 years). This is also known as a pure term plan as it allows pure protection of life only. So, under this plan if the policyholder dies during the policy tenure, a death benefit is paid to the nominee. But if the insured outlives the policy, he/she gets no benefit at all. Life Insurance Corporation of India is the largest public sector insurance provider offering best policies on term life insurance.

2. Term Return Of Premium Plans (TROP)

A TROP is a dual purpose plan that offer savings as well as life coverage. So, as per the terms of this plan if the policyholder dies during the policy tenure, the insurance company offers death benefit to the nominee of the insured. But in case the policyholder outlives the plan, he/she is entitled to receive maturity benefit.

Also Read: Best Term Insurance Plan With Return Of Premium In India

3. Money Back Plans

Under this plan, the policyholder is entitled to receive a regular income offered by the insurer together with an assured coverage on life. All you need is to pay the premiums on time to have the option of getting the amount at standard intervals or at particular duration in life. Further, the option of maturity benefit is also available if the insured survives the tenure of the plan. However, if they die during the policy tenure, the nominee receives death benefit.

Also Read: A Guide to Money-Back Policy

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4. Child Insurance Plans

The child life insurance plans are offered to save enough to secure a child’s future and to plan for the financial future of the child. Under this plan, the parents who buy the policy gets life cover as well as a part of premium is secured for the future events of the child such as higher education,  wedding etc.

5. Unit-Linked Insurance Plans (ULIP)

For people who are looking for an investment option along with life cover can consider ULIPs. These plans are ideal for investment and life security as a portion of the premium paid by the insured is allocated for life coverage, whereas the rest is invested in market-linked investment products.  However, it comes with a 5 year lock-in period.

6. Endowment Plans

This is another dual benefit plan that allow both savings option and coverage of life option. Similar to ULIP, one portion of the premium is saved to gain maturity benefit, while the other portion is invested for offering life coverage. The policyholder is entitled to gain from the maturity benefit in case the person outlives the plan. If not, the nominee of the plan receive death benefit in case of demise of policyholder.

7. Whole Life Policy

As suggested by the name, a whole life policy covers the policyholder for entire life or till the age of 100 years (99 in some cases). Here, if the insured dies during the policy tenure, the family gets death benefit.

8. Retirement Plans

Financial security is important for retired individuals to ensure smooth running of life after they are retired. Retirement plans allow coverage of life as well as pays death benefit as a lump sum amount to the nominee if the insured dies. Further, a portion of the premium paid under this plan is used as an annuity.

9. Group Life Insurance Plans

The group life insurance policies are more common among the employees as they cover all the members of a group. Here, the premium is paid by all the members of the group collectively and in return all of them receive coverage for life under one single policy.

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Life Insurance Scope or Benefits

As we understood from the above explanation of the nature of life insurance, the basic purpose of a life insurance plan is to secure a family from financial devastation in case of sudden demise of the insured or head earning member. Of course, no policy can compensate the death of a family member. However, getting financial solace in the form of life insurance death benefit can give some financial respite to the family.

Hence, it is essential for every family to have the security of life insurance. Let’s take a look at the scope of life insurance in the form of its benefits as mentioned below:

#1. Secure a family financially to meet its goals –  When the head earning member of a family dies suddenly, they leave behind many responsibilities that they have been performing on the shoulder of their beneficiaries. In such case without financial back up, the nominee or the family becomes helpless.  So, the death benefit received can support them to lead their life comfortably.

#2. Protect the future of children – Every individual wants to secure the future of their children. In fact, people work hard so that they can offer the best to their family and children. By procuring a life insurance you can make sure to fulfill your children’s dreams by financially securing them even after you are gone. The premium waiver benefit of child plans are such that they support in completing the education of the child in case the parents die during the policy duration.

#3. Support to pay off your liabilities – Loans and liabilities are a part of life these days and they are supposed to make life comfortable. However, this comfort may cause trouble in the absence of the head earning member. Here, the sum assured received as death benefit support the family to repay the debts.

#4. Future security – If the life insurance plan is annuity-based, it help the policyholder to enjoy double benefits of wealth creation as well as serve as insurance cover. Thus, it can support financial plans of your family.

#5. Tax benefits – Tax saving is a huge benefit offered by life insurance. Benefits of up to INR 1.5 lakhs can be received on the premium paid under Section 80C and on death/ maturity benefits under section 10(10D) by the beneficiary.

To Conclude

It is important for everyone to expect the best in life but it is also important to stay prepared for the worst since unpredictability is a part of life. Hence, to take care of such unpredictability, life insurance serves as the much-needed support in the absence key earning family member.

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FAQs: Nature and Scope of Life Insurance Policy

Is life insurance a necessity?

Yes, it is necessary to have life insurance to prevent any drastic financial breakdown when the head earning member of a family is no more.

What is the nature of life insurance organizations?

Life insurance policies are contracts that are one-sided in terms of their nature. This is because the insurer makes a promise that is enforceable and under which they must pay death benefit to the nominee of the insured. In return the policyholder has to perform only one action and that is to pay the premiums on time and regularly in the future.

What is the key purpose of buying life insurance?

Life insurance supports a family through money called as death benefit after the death of the insured. Hence, buying a policy of life insurance help is removing financial insecurity of your loved ones as and when needed.

What factors affect life insurance rates?

The factors that affect the cost of Life Insurance are:
Age 
Gender 
Health condition 
Family Medical History
Lifestyle 
Occupation 
Type of Policy 
Coverage Amount 

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Feb 16, 2023
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PayBima Team
PayBima is an Indian insurance aggregator on a mission to make insurance simple for people. PayBima is the Digital arm of the already established and trusted Mahindra Insurance Brokers Ltd., a reputed name in the insurance broking industry with 17 years of experience. PayBima promises you the easy-to-access online platform to buy insurance policies, and also extend their unrelented assistance with all your policy related queries and services.

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