How Does Life Insurance Work?

Life insurance is a legal agreement between the life insurance company and the life insured. As part of the agreement the life insurance company pays the specified amount of money known as life cover or death benefit to the policy nominee if the insured person dies during the policy term.

In return for the life cover benefit, the policyholder will have to pay a fixed amount, the life insurance premium. The premium payable is based on various factors such as, age of the applicant, the sum assured and the time period selected, etc.

Some life insurance policies such as term plans do not feature a maturity benefit if the policyholder survives the policy term. On the other hand, other types of life insurance plan such as child plans and endowment plans offer a maturity benefit at the end of policy term.

Knowing how life insurance works can help you make a well-informed decision about how a specific type of life insurance plan suits you protection needs. Whether you are have already purchased a life insurance policy or are still planning to purchase one, getting each and every detail about the policy is essential. Here is a breakdown of how a life insurance policies operate:

Term life insurance plan is a type of life insurance plan that is purely protection oriented in nature. This type of term plan provides a lump sum payment to the nominee in case of the policyholder's death during the policy term. One of the main advantages of buying these plans is their premium rates.

They provide a high coverage amount for a low cost. To understand how term life insurance works, suppose you purchase a 20-year term plan with a cover of Rs. 1 crore. If the policyholder dies during the policy term, the beneficiary receives the death benefit. However, if the policyholder survives the term, then there is no payout unless you have purchased a term plan with return of premium .

Now that you know how does life insurance works, let us understand the different types of life insurance policies are available. However, before selecting any life insurance policy, you have to consider your financial goals and check the policy terms and conditions. Listed below are the different types of life insurance plans currently available in India:

Life insurance is not just important for the breadwinner. Individuals, including young adults, parents, and business owners, often need life insurance, as it offers financial protection to their loved ones in case of their untimely death.

• Parents or guardians: For ensuring your kids' financial stability till they are able to support themselves.
• Homeowners with a mortgage: Coverage from life insurance can be used to pay off outstanding home loans.
• Single individual: As a single individual, you might not have any dependents, but you still have some financial liabilities like student loans. Life insurance can ensure these outstanding debts are paid off.
• Business owners: To protect against the loss of your one key employee.
• High-net-worth individuals: Those who have significant assets, life insurance can be the best way for estate planning, ensuring a tax-free wealth transfer.

Being aware of how life insurance works makes your financial planning better. By understanding all the details about the policy, you will know how many benefits you will get by purchasing the plan. The benefits of a life insurance policy abound. Here are some of the top benefits that life insurance provides you and your family:

• Financial security: Life insurance protects your family from financial difficulties when you are not around them. It provides a lump sum amount to your family if you die during the policy term. With the significant amount of money, your dependents can manage expenses like outstanding debts, healthcare, education, etc.
• Tax advantages: Premiums paid under the life insurance policy are allowed as tax deductions under Section 80C of the Income Tax Act. This tax benefit is only applicable under the old tax regime. Furthermore, the sum assured received under the plan is tax-free under Section 10(10D) of the Income Tax Act.
• Peace of mind: Provides peace of mind that your family will be financially protected, even in your absence.
• Long-term wealth creation: Life insurance plans like ULIPs aid in the accumulation of wealth over the long term through disciplined investment with life coverage.
• Supplemental income: A permanent life insurance component, cash value can be a valuable source of additional income if you are retired. It might be very helpful for paying for unforeseen costs or for retirement, travel, and leisure.

In order to buy a life insurance policy, it's important to select one that aligns with your financial goals, requirements, and preferences. Here are some instructions that you can follow to buy life insurance in India:

• Assess your needs: First, determine how much coverage you will need. Consider factors like your earnings, expenditures, long-term financial objectives, and the financial needs of your dependents.
• Research different types of policies: After that, familiarize yourself with how does life insurance work and then research different types of life insurance policies, their features, and suitability for your needs.
• Compare policies: Examine all the different life insurance plans that are provided by various providers. Consider aspects including policy terms, premiums, coverage, and extra perks.
• Select a reputable insurer: Ensure that you purchase a life insurance policy from a reputable insurer with a strong claim settlement ratio.
• Consult a financial advisor: Consult with a financial expert if you are unsure about what kind of life insurance policy you should purchase.
• Complete the application process: Fill out the application form and provide complete information about your personal details, beneficiaries' details, and medical history.

Axis Max Life Insurance stands out by offering life insurance solutions such as term plans, retirement plans, savings plans, and ULIPs through its multi-channel distribution. As a trusted name in the insurance industry, Axis Max Life Insurance brings decades of expertise.

Their prompt claim settlements, transparent policies, and 24/7 available customer support ensure reliability. Furthermore, Axis Max Life makes the life insurance process seamless with its digital approach. From comparing different life insurance plans and applying for policies to paying policy premiums and filing claims, every step can be completed online.

Understanding how does life insurance works in India is important for choosing the right policy for you and your family. By getting information about the life insurance fundamentals, types of policies, and the purchasing procedure, you can ensure that you choose the right policy that aligns with your long-term financial goals.