Life Insurance 101: Understanding the Basics and Making Informed Decisions

With the unpredictability of life and the need for financial security of family members, insurance is necessary for every individual. Insurance is a legal agreement that guarantees financial cover and funds for any future unfortunate occurrence against a periodic payment of money as the “premium”. The premium amount is computed based on the tenure and valuation of the selected insurance plan and is usually payable annually.

Insurance companies offer various insurance plans, such as general and life insurance. The insurance policies cater to the diverse needs and requirements of the policyholders.    

We have listed below the details of the types of insurance policies available in the market: 

  • General Insurance

Insurance companies offer various types of general insurance policies, such as health, motor, home, fire and travel insurance. 

  • Health Insurance: These provide coverage for financial expenses through reimbursement or cashless payment for medical emergencies and treatment. These protect against expenses for critical illness treatment, hospitalisation, and other medical costs. 
  • Travel insurance: These policies protect against untoward incidents that may cause financial loss or any major issues to the policyholder while travelling, domestically or internationally.
  • Motor insurance: These protect your vehicles against any accident that causes financial loss. Vehicles such as cars, bikes and commercial vehicles are covered under these policies. 
  • Home insurance: These protect your home against any man-made and natural accidents that cause financial damage. 
  • Fire insurance protects against financial loss caused by accidental fire.

The general insurance policies can be equipped with additional floaters to cover all categories of emergencies.

  • Life Insurance

Life insurance includes different types of policies, such as term life insurance, whole life insurance, endowment plans, unit-linked insurance plans, and child and pension plans. 

  • Term insurance: These provide financial support while also providing wealth maximisation options. Term life insurance is valid for a certain period and is available at lower premium rates. 
  • Whole life insurance: Whole life insurance is valid for the entire duration of the policyholder’s life and offers a death benefit in case of the policyholder’s death.
  • Endowment plans: These policies provide a lump sum payout to the policyholder on maturity. The nominee receives a death benefit in case of the policyholder’s death.
  • Unit-linked insurance plans (ULIP) : Investment in ULIPs offers dual benefits through an insurance policy and investment options. The premium is partially allocated in market-linked debt and equity instruments. 
  • Child plan insurance: These plans combine savings with insurance and offer financial support. The lump sum payout is beneficial for fulfilling the future goals of the children.
  • Pension plans: These policies are plans in which investment is made throughout your working years. Over time, these pension or retirement plans accumulate a lump sum corpus that guarantees a steady flow of income after retirement.

Key things to note before buying an insurance policy

Given the need to ensure financial security for you and your family in the face of adversity, selecting an appropriate insurance policy curated for your requirements and financial goals is essential. Factors such as age, health conditions, occupation, smoking and drinking habits, type of insurance policy and claim history determine the amount of life coverage and premium to the policyholder.


the authorRoberto