What is Life Insurance Policy? Benefits & How Does it Work in India

By Okbima 11 Mar 2024
what is life insurance?


What is Life Insurance: Life insurance is a financial product that provides a lump sum payment to beneficiaries in the event of the policyholder's death. In India, life insurance is offered by various companies and can be purchased to provide financial security to loved ones. Premiums are paid regularly to keep the policy active and ensure a payout upon death.


What is Life Insurance Policy?

Life insurance in India is a financial protection option that provides a lump sum payment to the policyholder's beneficiaries upon the policyholder's death. It offers peace of mind by ensuring the financial well-being of loved ones. Additionally, it may include features like maturity benefits, riders, and tax advantages, promoting long-term financial security.


Benefits of Life Insurance

Life insurance in India offers various benefits that cater to the financial security and well-being of individuals and their families. 

  • Financial Protection for Dependents: Life insurance provides financial safety for the policyholder's family in case of their untimely demise. The death benefit ensures that the family has a source of income to maintain their lifestyle, pay for education, and cover other expenses.

  • Tax Benefits: Life insurance policies in India offer tax advantages under the Income Tax Act. Premiums paid towards life insurance policies are eligible for deductions under Section 80C, and the death benefit received by beneficiaries is typically tax-free under Section 10(10D), subject to certain conditions.

  • Long-Term Savings and Investment: Many life insurance products, such as endowment and unit-linked insurance plans (ULIPs), serve as both protection and investment options. 

  • Health Benefits: Some life insurance policies in India come with riders or additional benefits that cover critical illnesses, disabilities, or medical expenses. These riders can be added to the base policy to enhance the overall coverage.

  • Retirement Planning: Pension plans and annuity products offered by life insurance companies in India help individuals plan for their retirement. These plans provide a regular income stream post-retirement, ensuring financial independence during the later stages of life.


How Does Life Insurance Work?

Life insurance in India works by providing financial protection and support to individuals and their families. Here's a general overview of how life insurance works in India.

  • Policy Purchase: Individuals can choose a life insurance policy based on their financial goals and needs. Common types of life insurance plans include term insurance, endowment plans, whole life insurance, and unit-linked insurance plans (ULIPs).

  • Premium Payment: Policyholders pay regular premiums, either monthly, quarterly, half-yearly, or annually, to the insurance company. The premium amount is determined based on factors such as the sum assured, policy term, age, and health of the insured.

  • Policy Coverage: During the policy term, if the policyholder passes away, the insurance company pays a death benefit to the nominee or beneficiaries. This amount, known as the sum assured, helps cover financial obligations and provides financial safety to the family.

  • Maturity Benefit: In the case of endowment plans or whole life insurance, if the policyholder survives the policy term, a maturity benefit is paid. This is a lump sum amount that includes the sum assured and any bonuses or guaranteed additions.

  • Riders and Add-ons: Policyholders can enhance coverage by adding riders, such as critical illness riders or accidental death benefit riders, for additional protection. These riders come at an extra cost but offer specific benefits in case of certain events.

  • Tax Benefits: Premiums paid towards life insurance are eligible for tax benefits under Section 80C of the Income Tax Act. Moreover, the beneficiary generally does not have to pay taxes on the death benefit they receive under Section 10(10D).


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What are Life Insurance Payout Options? 

Life insurance payout options in India are the different methods in which the death benefit or maturity benefit can be distributed to the policyholder or their beneficiaries. The payout options may vary based on the type of life insurance plan chosen.

Common life insurance payout options available in India:

  • Lump Sum Payment: This is the most straightforward option, where the entire death benefit or maturity benefit is paid as a one-time lump sum amount. The nominee or policyholder's beneficiaries receive the entire sum assured in a single payment.

  • Installment Payouts: Instead of a lump sum, the insurance company may offer the option to receive the death benefit or maturity benefit in installments over a specified period. The installments may be monthly, quarterly, half-yearly, or annually.

  • Income Replacement: This option provides a regular stream of income to the beneficiaries for a predetermined period. The income can be a fixed amount or a percentage of the sum assured, ensuring a steady financial flow to meet expenses.

  • Joint Life Payout: Some life insurance plans allow the policyholder to choose a joint life payout option, where the death benefit is paid to the surviving spouse or another joint life assured in the form of a joint life annuity or a lump sum.

  • Annuity Options: In the case of pension or retirement plans, the maturity benefit may be used to purchase an annuity. An annuity provides a regular income stream for a specified period or the lifetime of the policyholder.

  • Partial Withdrawals: Some policies, such as unit-linked insurance plans (ULIPs), may allow partial withdrawals during the policy term. This option provides flexibility for the policyholder to access a portion of the accumulated funds for specific needs.

  • Accumulation of Benefits: Instead of an immediate payout, the policyholder may choose to accumulate the death benefit or maturity benefit within the policy, allowing it to grow over time with interest or bonuses.


Why Buy a Life Insurance Plan From Okbima? 

There are so many benefits to buying a life insurance plan from Okbima such as we provide comparison, convenience, and a wide range of options.

  • Comparison: Okbima allows you to compare various life insurance plans from different insurance companies. This can help you to make an informed decision by evaluating policy features, benefits, and premiums across multiple insurers in one place.

  • Convenience: Okbima offers the convenience of purchasing life insurance from the comfort of your home. You can browse, compare, and buy policies online without the need to visit physical insurance offices.

  • Wide Range of Options: Okbima offers a diverse range of life insurance plans. This allows customers to choose a policy that best fits their needs, budget, and preferences.


Read More:

Best Life Insurance Companies in India - [Updated 2024]

Term Plan With Return of Premium | Features & Benefits

Difference Between Term Insurance and Life Insurance



In conclusion, life insurance is a financial option that provides protection and security for loved ones in the event of the policyholder's death. It offers peace of mind knowing that beneficiaries will have financial support to cover expenses such as funeral costs, debts, and future living expenses. You can contact “Our Experts” to buy the best life insurance plans.


Life insurance provides a safety net for families and individuals by offering a financial payout in the event of death or reaching maturity, ensuring their financial stability for the future.

Failure to disclose information may result in policy termination or diminished benefits.

Your life insurance coverage should be based on your financial responsibilities, objectives, and your family's requirements. Take into account aspects such as debts, replacing lost income, and potential education expenses.

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