Life insurance is a legal agreement between an insured and an insurance company. According to that a fixed amount of money is paid to the insured or the beneficiary at the end of its term or upon the death of the insured. It also offers investment benefits. With a life insurance policy, you can save for your old age, fund your child's education, save taxes and so on.
Most life insurance policies also provide tax benefits under various sections of the Indian Income Tax Act. Insurance policy holders pay a monthly, quarterly or annual premium to insurance companies. When individuals die or when the policy has reached maturity, a pre-determined amount is paid to the policy holder or the dependents as nominated by them.
Insurance companies collect premiums from a large number of people. Only a few of these insured people may actually suffer the loss. Thus insurance companies invest the money they collect and end up making money.