Since life itself is uncertain, all
individuals try to assure themselves of
a certain sum of money in the future to
take care of unforeseen events or
happenings. Individuals in the course
of their life are always exposed to some
kind of risks.
The risk may be of an event which
is certain that is death. In that case,
what will happen to the other members
of the family who are dependent on a
particular individuals income. The
other risk may be living too long in
which an individual may become too
old to earn i.e., retirement. In this case
also, the earnings will decline or end.
Under such circumstances, individuals
seek protection against these risks
and life insurance companies offer
protection against such risks.
A life insurance policy was
introduced as a protection against the
uncertainity of life. But gradually its
scope has widened and there are
various types of insurance policies
available to suit the requirements of an
individual. For example, disability
insurance, health/medical insurance,
annuity insurance and life insurance
proper.
Life insurance may be defined as a
contract in which the insurer in
consideration of a certain premium,
either in a lump sum or by other
periodical payments, agrees to pay to
the assured, or to the person for whose
benefit the policy is taken, the assured
sum of money, on the happening of a
specified event contingent on the
human life or at the expiry of certain
period. Thus, the insurance company
undertakes to insure the life of a person
in exchange for a sum of money called
premium. This premium may be paid
in one lump sum, or periodically i.e.,
monthly, quarterly, half yearly or
yearly. At the same time, the company
promises to pay a certain sum of money
either on the death of the person or on
his attaining a certain age (i.e., the
expiry of certain period). Thus, the
person is sure that a specified amount
will be given to him when he attains a
certain age or that his dependents will
get that sum in the event of his death.
This agreement or contract which
contains all the terms and conditions
is put in writing and such document is
called the policy. The person whose life
is insured is called the assured. The
insurance company is the insurer and
the consideration paid by the assured
is the premium.