How does Life Insurance Work?

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How does Life Insurance Work?

Life insurance is a contract between two parties, namely, an individual (the insured or policyholder) and a life insurance company (the insurer or insurance provider)

Life insurance ensures your family's financial security and well-being in the event of your unexpected passing.

To maintain your life insurance coverage, it's essential to keep up with premium payments according to the chosen plan. There are various types of life insurance policies, each serving different purposes.

Term insurance is the most straightforward form, offering pure life coverage with death benefits for your family in case of your demise. Once the benefits are disbursed, the coverage ends.

Savings plans, on the other hand, combine long-term savings with life insurance. With options like money-back, endowment, or guaranteed returns plans, you receive a maturity benefit upon policy maturity, contingent on your survival.

Unit-Linked Insurance Plans (ULIPs) integrate life insurance with investment. You can select a ULIP based on your risk tolerance and investment objectives. Throughout the policy term, your funds are invested, and upon maturity, you may earn market-linked returns.

Life insurance plans provide flexibility in terms of policy duration, premium payment periods, and payment methods according to your preferences and needs. The policy term determines the duration of coverage for your family, while the premium payment term can be tailored to your payment preferences, including a lump sum option.

Additionally, life insurance may not cover specific illnesses, injuries, or accidents. Riders can be added to cover these unforeseen risks, such as hospitalization expenses, critical illnesses, accidental death or disability, typically for an additional but reasonable fee.

It's crucial to be aware of any exceptions and exclusions in your life insurance policy before purchasing to ensure you maximize its benefits.

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