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How Does A Life Insurance Policy Work?

Uncertainties are increasing day by day all around the world, with this factor kicking in, having life insurance becomes essential. Having security in financial terms for your family in your absence is essential with the current lifestyle of every person. Due to the CoronaVirus outbreak more and more people in India are coming to a realisation of the importance of having life insurance. 

How Does A Life Insurance Policy Work?

Most people do not have much knowledge or awareness about life insurance and that leads to one of the major barriers to far-reaching adoption of life insurance. There are several categories of life insurance available in the market, and some of them function the same which confuses a potential customer. Lets understand how does life insurance work step-by-step:

Step 1: Purchasing a life insurance policy

Purchasing a life insurance plan requires making numerous important decisions regarding your insurance needs and family’s future financial requirements. You should utilise their time researching about the various plans that you have in your mind, choosing the right insurance plan is the most important factor. Most beneficial life insurance policies are those which are customizable. 

While choosing a life insurance policy you should always keep certain factors such as the policy tenure, premiums, riders, and the coverage before purchasing it. Before purchasing the life insurance policy you must recognize your need for buying life insurance.  You should recognize the following factors to ensure you make an informed decision while purchasing a life insurance policy:

  • How much life insurance do you need?

Ideally it is said that the coverage amount of a life insurance policy should be 3 times more than what you earn so that you and your family don't face any financial difficulty in desperate times. To estimate your insurance cover you must estimate the amount your family requires or the amount you require to reach your goals and aspirations, including your expenses which includes protecting your spouse, travelling, your kids school expenses etc.

  • What type of life insurance do you need?

Life insurance has several categories and each one of them has different features. Each and every life insurance category has different benefits along with. It is important you recognize the type of life insurance plan you require. Some life insurance plans offer multiple options of investment tools in which you can invest your money. 

  • How to buy a life insurance policy?

Buying a life insurance policy has become easier and simpler. You can purchase life insurance plans offline through agents or through the insurance provider and you can also purchase it directly from the online channels or insurance company's websites. Before the issue of the insurance policy the insurance company conducts a verification of the details provided. You are required to fill an application form with all the personal details like medical history and family health history. The insurance provider is entitled to your medical examination if required.

Step 2:  Paying premiums for your policy

Life insurance acts as a protector for the policyholder and the family members of the policyholder in the event of financial insecurities. Life insurance promises to offer the sum assured to the policyholder’s family in the event of the policyholder's death in exchange for regular premium payments. Basically premiums are paid to keep your insurance policy working so you can avail all the benefits under the policy.

  • How is the premium decided?

Premiums are determined through factors such as your age, gender, occupation, medical history, nicotine use, family health history, occupation etc. If you are a tobacco or alcohol consumer the premium for your insurance policy will be higher because you will be considered as a person with high risk involved.

  • What happens if you fail to pay the premiums on time?

If you fail to pay premiums on time you will be provided with a grace period in which you can pay all your due premium amount. The grace period offered is 15 days for monthly premium payments and 30 days for  quarterly, half yearly and yearly premium payments. This grace period offered usually is the same for many insurance companies and if you fail to pay due premiums within the grace period provided your life insurance policy will lapse, you will not be able to avail any benefits under the lapsed policy.

Step 3: Claiming your life insurance policy

In the event of an unforeseen demise of the policyholder, the insurance company is entitled to pay the sum assured to the nominee/beneficiary. The claim process of insurance companies in India is quite simple, you need to inform the insurance company about the claim as soon as possible. Secondly, you will fill the claim form and attach the required documents and submit it to the insurance company. Lastly, the insurance company verifies the claim and provides the benefit after the claim is approved. 

In some odd cases, the insurance company chooses to examine the claim. At this stage you are required to provide additional documents this can delay the process of claim settlement. The insurance company is entitled to reject an insurance claim and some of the reasons for claim rejections can be concealing information while purchasing the policy or providing false information.

Conclusion

Though different categories of life insurance plans work differently, the above detail is how life insurance works. This is the basic working of a life insurance policy. Before you actually buy the policy you should know how it works. This will help you in choosing the right plan and making an informed decision. You would want to invest your money into something that is more beneficial to you rather than the insurance provider. Above mentioned details will give you insights of life insurance.

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