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What is Life Insurance?

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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


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.