How does life insurance work?

  • Life Insurance

Life insurance is a word you may have heard many times, isn’t it? In fact, you may even have a life insurance policy. Or perhaps, you may be considering purchasing a life cover. But how does life insurance work, exactly? Knowing the details of how life insurance works can help you get the best plan for your needs and your family’s requirements.

After all, life insurance is not a one-size-fits-all kind of product. It needs to be customized according to the needs of the policyholder.

So, to help you identify the best life insurance plan for your needs, we’ll discuss the details of life insurance plans and how they work. 

What is a life insurance plan?

A life insurance plan is a contract between the policyholder and the insurance service provider, also known as the insurer. The policyholder pays premiums to the insurer. In exchange, the insurer provides a life cover to the policyholder. The cover remains in place during the tenure of the plan, as long as the premiums are paid on time.

In case the policyholder fails to pay the premiums due, most insurers offer a grace period. If the premium is paid within this window, the policyholder may be charged some additional fees for late payment, but the life cover does not lapse. However, if the premium remains unpaid, the policy will eventually lapse, and the life cover along with any other benefits will no longer be applicable..

How does life insurance work?

The basic principle of life insurance is that it gives you a life cover. A life cover is like a financial security blanket. Uncertain and unexpected incidents could leave dependent members of a family without anybody to rely on, if the primary or the only earning member passes away. In such situations, without any other source of income, it will be impossible for the surviving members of the family to meet their life goals or even the costs of their everyday expenses.

With a life cover from an insurance plan, this problem is easily solved. Why, you ask? Well, that is because in case a policyholder passes away during the tenure of a life insurance plan, the insurer pays out death benefits to the nominees mentioned by the policyholder.

What are the features of life insurance plans?

Although the exact features of life insurance plans vary from one insurer’s product range to another, there are certain basic features that are common to most, if not all plans. Here’s a closer look at some of these aspects.

Although the exact features of life insurance plans vary from one insurer’s product range to another, there are certain basic features that are common to most, if not all plans. Here’s a closer look at some of these aspects.However, there’s no guarantee for that. People switching jobs may also have to deal with other issues like increased age and health issues. This is because they will be older when they switch jobs. This could affect their eligibility for an insurance cover at the new workplace. With so much uncertainty surrounding a corporate group insurance plan, it’s always a safer idea to get your own insurance policy to supplement what your employer offers.

1   Policy term:

This is the period during which the life insurance plan remains active. For example, some life insurance plans may have a policy term of 20 years or 30 years. Others may remain active till the policyholder attains a certain age. 

2   Premium:

Premium is the fee that the policyholder pays the insurer. Depending on the plan, the premium may be paid as a one-time payment, or as periodic payments at different frequencies. This includes monthly, quarterly, semi-annual or annual payments. 

3   Sum assured:

The sum assured is the guaranteed amount that the insurer will pay the nominee if the policyholder passes away during the policy term.

4   Maturity benefits:

What happens if the policyholder survives the policy term? In this case, the insurer pays out maturity benefits to the policyholder. Not all life insurance plans have this feature, though. To be specific, term insurance plans only offer the sum assured as death benefits. They do not offer any maturity benefits.

5   Riders:

Riders are additional covers that you can choose to purchase, over and above the basic life cover. They can be helpful if you want to enhance the benefits provided by life insurance plans.

Some examples of riders include the ABSLI Critical Illness Rider, the ABSLI Accidental Death and Disability Rider and the ABSLI Waiver of Premium Rider.

The different types of life insurance plans

To fully understand how life insurance works, you will also need to get a better idea of the types of life insurance plans out there. These are the most common types.

1   Term life insurance:

Term insurance plans are life insurance plans that offer only death benefits. They do not come with any maturity benefit in case the policyholder survives the policy term. This is why they are the most affordable kind of life insurance plans. The ABSLI DigiShield Plan is an example of a term plan.

The sum assured is the guaranteed amount that the insurer will pay the nominee if the policyholder passes away during the policy term.

2   Endowment plans:

Endowment plans are also known as savings plans. They provide the dual benefits of insurance and savings in a single plan. In case the policyholder survives the maturity period, these plans pay out maturity benefits that make up the savings component. An example of an endowment plan that offers these benefits is the ABSLI Vision Endowment Plus Plan.

3   Unit Linked Insurance Plans (ULIPs):

ULIPs combine the advantages of insurance and investment. Here, in addition to providing a life cover, these plans also allow the policyholders to invest in their choice of funds. The options include equity funds, debt funds, balanced funds, etc. At the time of maturity, the policyholder receives the returns from these investments, based on the market performance. The ABSLI Wealth Max Plan is an example of a ULIP, where you only need to pay a one-time premium.

4   Retirement plans:

Retirement plans are life insurance plans that offer retirement benefits in addition to providing a life cover. Also known as pension plans, they ensure that policyholders continue to enjoy financial security even after their primary source of income stops. This can be in the form of lump sum payouts or periodic payments. The ABSLI Immediate Annuity Plan, for instance, is a retirement plan that offers regular income.

Last words

So, how does life insurance work? You know the answer to this question now. Before you purchase a life insurance plan, make sure you decide on the right amount of life cover, the best policy term and the riders you need, if any. That way, you can ensure that the benefits you get are enough to meet your needs and your family’s requirements.

ABSLI DigiShield Plan (UIN 109N108V05.)is a non-linked non-participating individual pure risk premium life insurance plan; upon Policyholder’s selection of Plan Option 9 (Level Cover with Survival Benefit) and Plan Option 10 (Return of Premium [ROP]) this product shall be a non-linked non-participating individual life savings insurance plan. 

ABSLI Vision Endowment Plus Plan (UIN: 109N092V04) is a traditional participating endowment plan. 

ABSLI Wealth Max Plan (UIN: 109L073V05) is a non-participating unit linked life insurance savings plan.

ABSLI Immediate Annuity Plan (UIN: 109N083V03)  is a non- participating non linked traditional annuity plan.

ABSLI Critical Illness Rider (UIN: 109B019V03), ABSLI Accidental Death and Disability Rider (UIN: 109B018V03), ABSLI Waiver of Premium Rider (UIN: 109B017V03) There are exclusions attached to the riders. Please refer rider brochure for more details.

In ULIP, THE INVESTMENT RISK IN INVESTMENT PORTFOLIO IS BORNE BY THE POLICYHOLDER

The linked Insurance Products do not offer any liquidity during the first five years of the contract. The policyholder will not be able to surrender/withdraw the monies invested in Linked Insurance Products completely or partially till the end of the fifth year from inception. Linked Life Insurance products are different from the traditional insurance products and are subject to the risk factors. The premium paid in Unit Linked Life Insurance policies are subject to investment risks associated with capital markets and the NAVs of the units may go up or down based on the performance of the investment fund and factors’ influencing the capital market and the insured is responsible for his or her decision. Aditya Birla Sun Life Insurance Company Limited is only the name of the Insurance Company and does not in any way indicate the quality of the contract, its future prospects or returns. Please know the associated risks and the applicable charges, from your Insurance agent or the Intermediary or policy document. The various funds offered under this contract are the names of the funds and do not any way indicate the quality of these plans, their future prospects and returns. The Past performance of the Unit linked fund(s) of the company is not necessarily indicative of the future performance of any of these Unit linked fund(s). 

ADV/5/21-22/274

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Term Products

ABSLI Life Shield Plan

A term insurance plan that offers you the flexibility of plan options suitable for your family's non- negotiable goals and ensure they need not compromise on their lifestyle. UIN: 109N109V04

  • Choice of 8 plan options
  • Cover your spouse under the same policy
  • Longer Life cover till age 85

ABSLI DigiShield Plan

PROTECTING multiple life needs with one plan is now possible. UIN 109N108V05

  • 10 Plan Options to suit your varied protection needs
  • Flexible death benefit pay-out options
  • Life insurance cover for 1 year or till age 100 yrs

ABSLI Saral Jeevan Bima

A simple plan to protect your family’s financial future (UIN 109N128V01)

  • Simple & affordable plan
  • Flexible premium paying terms
  • Enhance insurance cover with rider

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