Three years ago, my friend Priya’s father passed away suddenly. He was 52. Healthy guy, never sick. A heart attack took him in his sleep.
He left behind a wife, two kids in college, and an unpaid home loan. No life insurance. Zero.
Priya had to drop out of engineering. Her younger brother switched from a private school to a government school. Their mother started working as a tutor to make ends meet.
One policy could have changed everything.
But here’s the thing. Priya’s father knew about insurance. He just kept postponing it. “I’ll buy it next month,” he’d say. Next month never came.
So what is life insurance exactly? And why do smart people like Priya’s dad still avoid it?
Understanding What Life Insurance Is in Simple Terms
Forget the complicated definitions you read online. Here’s “what is life insurance” in plain language.
You pay some money to an insurance company every year. If you die, they pay a large sum to your family. That’s the whole deal.
Think of it as a safety net. You’re not buying it for yourself. You’re buying it for the people who depend on you financially.
Your salary pays for your home, your kids’ education, daily groceries, and electricity bills. Everything. If you’re suddenly not there, who pays for all this?
That’s where life insurance steps in. It replaces your income when you can’t earn anymore.
Why Most People Get Life Insurance Wrong
I’ve noticed something interesting. People spend hours researching phones before buying. But insurance? They just sign whatever the agent puts in front of them.
Last month, I met a software engineer earning 15 lakhs a year. He had a 10 lakh insurance policy. I asked him why so little. He said, “The agent told me this is enough.”
It wasn’t even one year of his salary. How would his family survive for 20 years on that?
This happens because people don’t really understand what life insurance is supposed to do. They see it as a checkbox. “Yeah, I have insurance.” But they don’t think about whether it actually protects their family.
Different Life Insurance Policy Plans Available
Now comes the confusing part. Walk into any insurance company, and they’ll throw ten different policy names at you.
Let me break down the main life insurance policy plans you’ll encounter.
Pure Term Insurance
This is the simplest one. You pick a time period, maybe 30 years. You pay a fixed amount yearly. If you die in those 30 years, your family gets the money. If you live past 30 years, the policy ends. You get nothing back.
Sounds harsh, but it’s actually the smartest option for most people. Why? Because it’s super cheap. For 12,000 rupees a year, a 30-year-old can get 1 crore coverage.
Traditional Endowment Plans
These are what agents love selling. You pay premiums for 15-20 years. If you die, your family gets the sum assured. If you survive, you get your money back with some profit.
People love these because they feel like they’re getting something back. But the returns are terrible. Usually 4-5% per year. Your money grows slower than inflation eats it.
Money Back Policies
Similar to an endowment, but they return some money to you while the policy is running. Maybe 20% after 5 years, another 20% after 10 years.
Feels good to get money back. But again, the overall returns are poor and premiums are high.
ULIPs – Unit Linked Plans
These mix insurance with stock market investment. Part of your money buys insurance. The rest goes into mutual funds.
Can work well if you understand markets. But the early years have high charges. Plus, you need to actively manage where your money goes.
Whole Life Insurance
These cover you till you’re 99 or 100 years old. Guaranteed to pay out eventually since everyone dies. Premiums are much higher than term insurance.
Mostly used by wealthy people for estate planning and tax benefits.
What Is Life Insurance Really Meant to Do?
Here’s where people mess up big time. They think life insurance policy plans are investments that should give returns.
Wrong.
Life insurance is protection, not an investment. Let me explain the difference.
Protection vs Investment
If your house catches fire, you have fire insurance. You don’t complain that you paid premiums for 10 years and got nothing back because there was no fire.
That’s insurance. You pay for protection. You hope you never need it.
Life insurance works the same way. You’re protecting your family’s financial future. The goal isn’t to make money. The goal is to make sure your family doesn’t struggle if you’re gone.
The Real Purpose
When you understand what is life insurance actually is for, the decision becomes clearer.
Your life insurance should:
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Replace your income for your family
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Pay off any loans you have
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Cover your kids’ education till they’re settled
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Handle daily expenses for years
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Give your spouse time to figure things out
That’s it. If your policy does these things, it’s working.
My Straight Talk to You
Stop overthinking what life insurance is and just get it. Analysis paralysis helps nobody.
You don’t need to understand every detail of life insurance policy plans. You need enough coverage at a price you can afford.
Start with simple term insurance. Get coverage of at least 15-20 times your annual income. From a company with a good claim settlement record. That’s 80% of the job done.
You can always buy more later. You can add riders. You can get fancy policies if you want. But get basic protection first.
Your family is counting on you. Even if they don’t say it out loud.
