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. There are three stages of a life insurance policy—purchase, payment of premiums and claiming the benefit.

Buying a life insurance policy

The first stage of a life insurance plan is the most important part. 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.

Along with the cost of the policy, the coverage and the tenure are critical components of a life insurance plan. The duration of life insurance policies varies depending on the plan, some provide coverage for 10 or 20 years, while some give lifetime coverage. One should choose the coverage very carefully taking into account factors like income, lifestyle, liabilities and number of dependents.

While most life insurance policies are sold offline through agents or distributors, many plans can be easily bought online without 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.

Premium Payment

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 insured person dies 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. Premiums depend on the age, gender, occupation, medical history, nicotine use, family health history, policy term and even the mode of purchase.

How do claims work?

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 can also opt for protection against accidental death or disability or choose to cover your spouse under the same policy.

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