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Life insurance is a means of providing ourselves and our loved ones with financial protection in the event of an unfortunate incident. Simply put, it is an agreement between the insured person and the life insurance company under which the company promises to pay the beneficiaries (family members) of the insured person a sum of money upon the occurrence of an unfortunate event in the life of the insured person or at some defined date in the future (normally when the insurance contract term finishes). In short, life insurance is the reserve fund for the family against an unforeseen and unfortunate event that may occur in one’s life.
When a person enters into the contract with a life insurance company to buy a life insurance policy, he or she pays to the insurance company, a sum of money (also called premium) on a regular basis every year throughout the contract term. Premium payments can be done annually, half-yearly or on a monthly basis. In return, the insurance company agrees to pay an agreed sum of money called sum assured to the beneficiaries if the insured person encounters an unfortunate event covered under the insurance policy (such as a premature death or permanent disability). Depending of the type of the insurance contract purchased, some contracts may offer payback benefit to the insured person at the end of the contract term, as a living benefit.
In the beginning, life insurance policies were bought as a mean to provide money to one’s loved ones in the event that the insured dies. These days, however, life insurance policies are bought as a mean to accumulate savings for future that can be used for children's education, retirement planning or other financial needs.
It should be noted that the above explanation is for a generic understanding of life insurance. Each life insurance product may have its own terms and conditions, though the principle of life insurance remains the same - financial protection of families.