Life Insurance may be defined as a contract in which the insurance company called insurer undertakes to insure the life of a person called assured in exchange of a sum of money called premium which may be paid in one lump sum or monthly, quarterly, half yearly or yearly and promises to pay a certain sum of money either on the death of the assured or on expiry of certain period.
a. Life insurance provides protection to the family at premature death of an individual.
b. It gives adequate amount at an old age when earning capacities are reduced.
c. Life insurance is not only a protection but is a sort of investment because a certain sum is returnable to the assured at the time of death or at the expiry of a certain period.
Life insurance policies are of many kinds. Some of them are given below:
In this kind of policy, the sum insured is payable only on the death of the assured to the beneficiaries or heir of the deceased. The premium is payable for a fixed period (20 or 30 years) or for the whole life of the assured. If the premium is payable for a fixed period, the policy will continue till the death of the assured.
Under this type of policy, the insurer undertakes to pay the assured a specified sum, on the attainment of a particular age or on his death, whichever is earlier. In case of death of the assured before he attains the specified age, the sum is payable to his legal heir or the nominee. Otherwise, the sum is paid to the assured, when he attains a particular age. Thus, the endowment policy matures after a limited number of years.
The policy is taken up jointly on the lives of two or more persons is known as Joint Life Policy. On the death of any one person, the assured sum or policy money is paid to the other survivor or survivors. The premium is paid jointly or by either of them in installments or lump sum.
Usually this policy is taken up by husband and wife jointly or by two partners in a partnership firm, where the amount is payable to the survivor on the death of either of the two.
Under this policy, the assured sum or policy money is payable in monthly or annual instalments after the assured attains a certain age. In this case, either the whole amount of the premium is paid once or premium is paid in instalments over a certain period. This policy is useful to those who prefer a regular income after a certain age.
This policy is taken to provide funds for the education or marriage of children. For example, Jeevan Anurag Policy. In this policy, the amount is payable by the insurer when the children attain a particular age. The premium is paid by the person entering into the contract. However, no premium will be paid, if he/she dies before the maturity of the policy.