Meaning of Life Insurance

It is true that Human life cannot be valued but there exists financial loss to the household if the one who earns dies or gets any kind of disability. Today lives are at risk due to natural, medical and accidental causes. When someone dies or gets permanent or temporary disability due to any reason, the household or the dependants may have to face many financial challenges. Therefore the cost of funeral expenses, running the household, studies, upbringing and marriages of children everything becomes a burden and sometimes may lead to debts for the dependants of the one who died.

Meaning of Life Insurance

Life insurance is the contract between the insurance policy holder (who is insured or who pays the premium) and the insurer that can be any private, non-profit agency or any affiliated government body. The insurer promises to pay a certain sum of money that is called sum assured on the death of the person insured to those are specified as beneficiaries in the policy. Sometimes some other events such as terminal or critical illnesses and funeral expenses are also compensated. Death due to riot, fraud, war civil commotion and suicide are excluded and not compensated the policy becomes null and void in such cases.

Parties involved in Life Insurance

Parties involved in the contract of insurance may be several and most of the times the terminologies are misunderstood and common people gets confused with insurance terms. However, there exists difference between the policyholder or the owner and the one who is insured. Owner of the policy is the one who pays the premium and who purchases the policy for self or for someone in family. If you are purchasing life insurance policy for yourself then you are both the owner and the insured. The beneficiary who is in most cases the dependants of the insured, get compensation in the event of policyholder’s death.

Types of life insurance

There may be various kinds of life insurance policies being bought and sold every day and each policy differs in its terms, benefits and costs to each person and from one provider to another. To understand types of life insurance policies we may divide them into three main categories they are Term Life Insurance, Universal Life Insurance and Whole Life Insurance.

Term life insurance requires payment of fixed amount and coverage for a fixed period of time say 10 or 15 years that is called ‘term’ or ‘span’ of the policy. These policies cover life and pay benefits if the insured person dies within the term.

In universal life insurance policy, the policyholder has the flexibility of paying any amount at anytime and the coverage is provided indefinitely from these policies.


Whole life insurance policies offer life coverage for whole life or usually until 100 years of age of the person insured. They pay the sum assured amount at the event of death and at maturity if the insured is alive until the policy expires.

There are some other types of life insurance policies such as endowment products that pay benefit at death or at maturity if the policy holder is alive until policy expires and money back products that pay specific amount at some specified dates along with the life coverage and maturity benefits. Annuity policies are also offered in which payment are fixed for a particular time and then annuities are provided after maturity at some specific dates along with life coverage. Thus, it is wise to opt for life insurance policy that provides peace of mind and security for the dependants after you.

Posted in: Life Insurance