What is Life Insurance

Life insurance (or life assurance) is a contract between an individual (policy owner) and the insurer, where the insurer agrees to pay the beneficiary a sum of money (generally referred to as Sum Assured) upon the death of the individual. In return for this obligation on part of the insurer, the policy owner agrees to pay a stipulated amount as premiums over regular intervals or as a lump-sum amount.

Most contracts have specific exclusions that are included as terms of the contract so as to limit the liability of the insurer.

Simply put, when an individual buys a life insurance policy:
• he is referred to as policy owner / policyholder
• he agrees to pay a certain amount of money (premiums) to the insurer for a certain period of time
• the insurer agrees to pay a certain lump-sum amount to a person nominated by the policy owner upon the death of the policy owner
• in some forms of life insurance products, the insurer also agrees to pay a lump-sum amount on the completion of the term of the policy upon the non-occurrence of the insured event i.e. on the survival of the policy owner

Life Insurance contracts, therefore, can broadly be classified as being:
1. Protection oriented policies: One of the most basic forms of life insurance, these products are primarily designed to cover the life of the insured and provide for a lump-sum benefit on the occurrence of death but do not pay any survival benefits i.e. no payments are made if the policyholder survives the term of the insurance contract.

2. Investment / Savings oriented policies: These products, while providing for life insurance, primarily facilitate the growth of capital on premiums paid by the policy owner. These product, therefore have an associated survival benefit i.e. if the policyholder survives the term of the policy, then a payment is made to the policy owner at the end of the policy term. This payment is usually equal to or more than the sum total of premiums paid by the policy owner to the insurer but may not always be so.

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