What is life insurance

Let’s begin by talking about life insurance. Life insurance is essentially an agreement wherein the insurance company agrees to pay a specified amount of money to an individual’s dependents in the event of his/her death.

Why is life insurance important? Many times, the untimely death of an individual causes not just an emotional void but also results in financial loss. This is especially so if the individual is an earning member of the family. Life insurance can’t fill the emotional void in case of death but it can certainly negate the effects of the financial loss. It ensures that the dependents of the deceased are taken care of financially.

Consider the following example:

Ram was 40 years old, married, with a daughter aged 12 and a son aged 8. His wife was a homemaker. Ram was the sole earning member of his family. He wanted his daughter to become a doctor and his son to go to the US for an MBA. Unfortunately, Ram died prematurely in an accident. A wise decision he had taken before his death was to invest in a life insurance policy. As a result, even after his death, his wife had the funds which she could use to fulfill Ram’s dreams.

Clearly, a life insurance policy ensures that an individual’s loved ones are financially secure in the event of his/her untimely death.