What is Life insurance and how does it work
What is Life insurance and how does it work is still a secret for a common man, most people think it is only a saving instrument but nobody explains how different type of saving instruments it is.
Life insurance is a contract between an insurance company and a customer to provide a risk cover to a customer against risk of life.
Life is unpredictable, nobody can tell what will happen in the next moment. Life insurance is only a tool to cover the unpredictable event that might happen to anybody. It covers only the risk of life. The meaning of the line is not that if a person having an insurance policy will never die. The meaning is that if a person has an insurance policy then the liabilities faced by a person will be covered with the compensation money of his policy.
An average person may have many liabilities like:
Source of Family income
Responsibility of parents
Education of kids
If a person faces a misshaping with life then all the liabilities will be faced by the next Survivor of his family. Insurance can make a person feel free from all these if he has sufficient amount of risk cover. Life insurance cover provided to customers by a company also depends upon human life value concept. Not only earnings and expenditures are also considered for calculating his maximum eligible value for insurance as well as his/her age,personal details, physical details, medical history, hobbies, profession and financial situation is also considered for providing desired amount of risk cover to customers.
Types of Life insurance policies
Life insurance policies further can be categorized in two parts:
1) Term insurance policies ( only risk cover policies)
These are the policies which provide only risk cover to customers. All premiums paid by customers are the cost for cover and no saving elements are included in these types of plans. These are very famous because of the cheaper cost of policies. Customers get higher risk cover in lower cost.
2) Endowment insurance policies ( investment policies)
These are the policies which provide risk cover to customers with the saving elements. These policies also mature after a selected period of time and customers get a lump sum of money on completion of the policy. These policies are bit costlier because the premium charged from customers include risk cover charges as well as saving money which will be invested for maturity of that policy.
Now, the answer of the question what is life insurance and how does it work is explained above but not complete there are some things to add more.
The working of life insurance is also based on the principle of loss sharing by the customers of companies who are facing the same type of risk. It is clear that companies having large customers have more capacity to pay claims. There is also an important factor of timely premium payments is necessary to be covered always under protection cover of life insurance policy. If a customer is not paying premium after his/her grace period or his/her policy is lapsed due to non payment of premium he is not covered under insurance cover of his/her policy.
In that case if a death claim arise then nominee is not eligible to get the claim. All of this is explained in the contract of life insurance policy.
Scenario of life insurance companies in India:
There are 24 Life insurance companies working in India. 23 of them are private sector companies and only 1 is a public sector (Govt.of India) company.
1 Life Insurance Corporation of India(Public)
2 HDFC Standard Life Insurance Co.Ltd.(Private)
3 Max Life Insurance Co. Ltd. (Private)
4 ICICI Prudential Life Insurance Co.Ltd.(Private)
5 Kotak Mahindra Life Insurance Co.Ltd.(Private)
6 Aditya Birla Sun Life Insurance Co.Ltd.(Private)
7 TATA AIA Life Insurance Co. Ltd.(Private)
8 SBI Life Insurance Co. Ltd. (Private)
9 Exide Life Insurance Co. Ltd.(Private)
10 Bajaj Allianz Life Insurance Co. Ltd.(Private)
11 PNB MetLife India Insurance Co.Ltd.(Private)
12 Reliance Nippon Life Insurance Company (Private)
13 AvivaLife Insurance Company India Ltd. (Private)
14 Sahara India Life Insurance Co.Ltd.(Private)
15 Shriram Life Insurance Co. Ltd.(Private)
16 Bharti AXA Life Insurance Co. Ltd.(Private)
17 Future Generali India Life Insurance Co. Ltd. (Private)
18 IDBI Federal Life Insurance Co. Ltd.(Private)
19 Canara HSBC Oriental Bank of Commerce Life Insurance Co. Ltd.(Private)
20 Aegon Life Insurance Co. Ltd.(Private)
21 Pramerica Life Insurance Co. Ltd.(Private)
22 Star Union Dai-Ichi Life Insurance Co.Ltd. (Private)
23 IndiaFirst Life Insurance Co. Ltd.(Private)
24 Edelweiss Tokio Life InsuranceCo.Ltd. (Private)
As you have seen above Most of private players are working with joint ventures of their foreign partners under FDI Law (foreign direct investment). After the permission of IRDA the private players entered the industry and competition among Life insurance players helped customers to get more options.
Each insurance company is registered with IRDAI (insurance regulatory and development authority of India) and works with rules and regulation pre described by IRDAI. It is the only controller body of the insurance sector in India.
Now, awareness about life insurance is increasing and we are also trying to provide knowledge to customers as well as to persons working in the insurance industry.
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