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How Does Life Insurance Work?

How Does Life Insurance Work?

With uncertainties increasing all around, life insurance is proving to be a lifeline. Having an insurance cover ensures that the dependents of the bread-winner of the family do not suffer financially in his/her absence. An increasing number of people in India are realising the importance of having a life insurance cover. As per data from Life Insurance Council, the new business premium for the life insurance industry grew over 37% on-year to touch Rs 1.69 Crores between April and November. However, the overall penetration of life insurance still remains low.

A lack of awareness is one of the major impediments for widespread adoption of life insurance. The availability of different types of insurance products also confuses some people. But most life insurance policies function in a similar manner.

Buying a life insurance policy

It starts with buying a life insurance plan, which involves making several important decisions regarding your needs and family’s future requirement. One should spend the maximum amount of time and energy in deciding the right life insurance product. The best life insurance policies are considerably customizable and offer ample flexibility to the policyholder. Take into account factors such as the policy tenure, premiums, riders, and the coverage before zeroing in on a policy. Another important factor to consider is the reason for buying life insurance. Creating a financial net is the primary aim, but many life insurance policies also have an investment component, which can determine the final payout of the policy.

How much life insurance do you need?

Simply put, buying a life insurance policy is equivalent to buying a financial benefit for yourself or your family. Therefore, you should calculate how amount will your family need or the amount required to meet your specific goal, by adding up all the expenses you hope to meet, which might include protecting your spouse, travelling to your dream destination, sending your kids to school, keeping your business going etc.

What type of life insurance do you need?

In addition to the amount of coverage you need, you should also figure out what type of life insurance will you need. Of all the types of life insurances available, there are two majors that will broadly help you determine the right policy – 1) How long you want your life insurance coverage to last? 2) What goal do you wish to prioritize and save for?

How to buy a life insurance policy?

Buying a life insurance policy has got simpler with time, thanks to the online channels that allow purchasing a policy easily, without many hassles. Insurance companies conduct a verification of the details provided by the buyer before issuing a policy. One has to fill out an application form with all the details like medical history and family health history. The insurer may even ask you to undergo a medical examination, if required.

Paying premiums for your policy

A life insurance policy is a contract between the policyholder and the insurance company, with the promise that the insurer will pay a pre-decided amount to the nominee on the condition that the policyholder pays all the premiums without fail. The pre-decided amount could be the maturity amount paid after the policy tenure gets over or the death benefit paid if the unfortunate happens during the policy term. In a nutshell, all the benefits of a life insurance policy are tied to the payment of premiums, which is why one should opt for a premium that can be easily serviced.

How is the premium decided?

Before approving your insurance application, most insurers carry out the process of Underwriting, which helps them determine the risks involved and the corresponding premium. After they thoroughly assess the risks depending on your age, gender, occupation, medical history, nicotine use, family health history, occupation etc, they decide if the cost of the cover they intend to provide to you is proportionate.

What happens if you fail to pay the premiums?

In typical insurance cases, once you miss your premium installment, you are given a grace period to pay the premium amount. In case you fail to do so even after the grace period, your policy will lapse and the benefits will no longer be paid out. However, depending on the type of policy, you might also be offered a revival period, to revive the policy; paid up can also happen depending upon type of policy and the number of premiums paid.

Claiming your life insurance policy

In the event of an untimely death of the insured, the insurance company pays the sum assured to the nominee. The claims process is very simple; the insurance company has to be informed as soon as possible after the death of the insured. The nominee has to fill a claims form and submit with required documents like death certificate. The insurance company verifies the claim and releases the benefit. In some cases, the insurance company may choose to examine the claim. You will have to provide additional documents and the claim settlement will take slightly more time. Sometimes, insurers reject an insurance claim. Some of the reasons for rejections are concealing information while buying the policy, giving false information and policy lapsing.


There is a wide divergence in the functioning of different life insurance policies. While a term insurance plan is simple and easy-to-understand, a ULIP has several variables. One has to take into consideration the different investment funds along with a host of portfolio management strategies. Term insurance, on the other hand, offers pure protection without any investment component. The iSelect+ Term Plan from Canara HSBC Oriental Bank of Commerce Life Insurance provides comprehensive coverage at affordable premiums. With the iSelect+ Term Plan, you have the option to augment cover through inbuilt coverages like Accidental Death Benefit, Child Support Benefit, Accidental Total and Permanent Disability Benefit in addition to the option of adding Spouse under the same policy with a discount on the rates of Spouse.

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