Insurance is covering risk at a cost. The insurer covers the risk of a particular contingency occurring to the insured for a cost called the premium. The insurer assures to pay a particular sum (called 'sum assured') for a premium payable by the insured up to the period agreed.

There are two types of insurance - life insurance and general insurance. Life insurance is of two types - whole life insurance and term life insurance. One basic principle of life insurance is "utmost good faith and without negligence". That is to say - insured persons should answer all the questions of the insurer faithfully and in full. If any material fact is withheld either voluntarily or unknowingly or disclosed partially, the insurance company can avoid all claims successfully on the plea that the insured was not faithful in disclosing all relevant material facts in full.

Whole life insurance

Under this policy, the insured should pay the premium till death. The maturity proceeds are used for funeral and last rite expenses or as legacy to legal heir.

Term Life Insurance

Term life policies are usually for a term agreed between the insured and the insurer where the insured agrees to pay premium for the term chosen. After the stipulated period of premium payment, the insurer pays the insured the sum assured along with bonus accrued. Here, the premium is determined by the sum insured and term chosen. The age at the entry point also plays an important role. Higher the age, higher will be the premium.