Life Insurance covers an individual and is taken by the individual themselves. The primary goal of this cover is to provide a measure of financial security to the policy holder’s family in case of the holder’s demise. Besides this, there may be several other riders and clauses added on the policy depending on the holder’s requirement.
There are two ways life insurance can be bought:
- Personal Life Insurance
- Group Life Insurance
To understand the life insurance, you need to understand the principles on which life policies are based on:
The premium of Life Insurance policies is decided based on the risk on the life of the proposer. For example the cost of insuring a person working in high-risk industries like mining, explosives etc. is going to be higher than for those working as administrative staff in a School. Similarly, the premium may differ for people of different ages, sex, and lifestyle (smoking and drinking habits).
A Case of Life Insurance Cover
Sachal Gupta aged 35 years, is living in Mumbai with this wife, Mira Gupta, and 2 children. He is working as an aircraft pilot with a leading cargo airline and his wife is an HR specialist in an MNC. While Mr. Gupta already has a Group life insurance cover of Rs. 25 lacs from his firm, he wants a personal life insurance cover worth Rs. 1 cr. as well, since the employer’s cover will not be enough for his family.
Due to the nature of his job, the insurer is charging a 10% extra premium to provide him with the cover. While, on enquiring about his wife he finds that her insurance policy will be approximately 20% cheaper than his. But as the advisor explains him about the risk on their lives due their nature of jobs, Sachal agrees for policy.
While completing the proposal form Sachal and Mira find out that they need to go through a medical test as well, which will be done by a lab and doctor authorized by the insurer, and they also need to disclose much information about their lifestyle and hobbies.
As the advisor explains that this is done to avoid any wrong selection of life insured which will be detrimental to all other less risky insured lives.