What is life insurance? A simple guide for Pakistani families
Life insurance is a promise between you and an insurer: you pay a fixed amount regularly, and if you die during the plan, your family receives a large sum. Most plans in Pakistan also work as savings, paying the money to you at the end. This guide explains how it works, without jargon.
In short
- You pay a premium; the insurer promises a sum of money, called the sum assured.
- If you die during the plan, your nominee receives it. In a savings plan you receive it yourself at the end, with bonuses.
- The main types are savings plans, family income plans, children's plans, couples' plans, group plans for employers, and Takaful.
- At State Life you have 31 days' grace to pay each premium, and 14 days to cancel a new policy.
How a policy works
You choose how much cover you want (the sum assured) and for how many years (the term). The insurer works out your premium from your age, your health, the sum assured and the term. You pay it yearly, half-yearly, quarterly or monthly.
If you die during the term, the insurer pays your nominee. If the plan is a savings plan and you live to the end, it pays you. State Life's Endowment Plan, for example, pays the sum assured plus every yearly bonus at the end, or to your family if you die first.
The main types of life insurance in Pakistan
- Savings (endowment) plans: cover plus a lump sum at the end, such as State Life's Endowment, Golden Endowment and Platinum Plus.
- Family income plans: an income for your family if you die. Family Pension Plan pays your family for 10 years.
- Children's plans: money for education or a wedding on a date you choose, paid even if the parent dies. See the Child Education & Marriage Plan.
- Couples' plans: one policy for husband and wife, such as Jeevan Saathi.
- Term cover: protection only, with no savings, so it costs less per rupee of cover. State Life offers it as a Term Insurance Rider on its savings plans, and as group term insurance for employers.
- Group insurance: one policy for a company's staff. See Group Insurance for Employees.
- Takaful: the Shariah-compliant version, in which members share risk through a common fund.
Where the bonus comes from
State Life's policies are "with-profits". Every year State Life shares 97.5% of its surplus with policyholders as a bonus: a fixed number of rupees for every Rs. 1,000 of sum assured. Once added, a bonus is guaranteed by the Government of Pakistan; future bonus rates are not. See how profit works on a State Life plan and this year's bonus rates.
What happens if you miss a payment
- You have a 31-day grace period after each due date, whether you pay yearly, half-yearly, quarterly or monthly.
- If a premium is still unpaid after that, the policy lapses. State Life lets you revive a lapsed policy within 5 years of the first unpaid premium, under its terms.
- Once 2 years' premiums are paid, the policy has a cash (surrender) value you can take if you end it early. In the early years it can be less than you paid.
- After 3 years' premiums you can borrow up to 80% of the surrender value instead, and keep the policy running. Interest is charged on the loan; State Life's FAQ quotes 10% a year.
How to choose a plan
- Start from the goal: protecting your family's income, a child's education, retirement, or halal savings. Our Plan Finder asks four questions.
- Pick a premium you can keep paying for the whole term. A lapsed policy loses much of its value.
- Match the term to the year you need the money.
- Add riders you need, such as accidental death cover or a waiver of premium if you become disabled.
- Name a nominee, and tell them where the policy document is kept.
Key terms
- Premium
- The amount you pay, yearly or in instalments.
- Sum assured
- The amount you are insured for. Bonuses are added on top of it.
- Term
- The number of years the plan runs.
- Maturity
- The end of the plan, when a savings plan pays out.
- Bonus
- Your share of State Life's yearly surplus, added per Rs. 1,000 of sum assured.
- Terminal bonus
- An extra bonus paid at the end on plans paid for more than 10 years.
- Nominee
- The person who receives the claim if you die.
- Surrender value
- The cash you receive if you end the policy early.
- Rider
- Optional extra cover, such as accidental death cover, added to a plan.
- Grace period
- The 31 days after a due date in which you can still pay.
- Free-look period
- The 14 days after you receive a new policy in which you can cancel it.
- Lapse and revival
- A policy lapses when premiums stop; State Life lets you revive it within 5 years.
Talk it through with an advisor
Free, no-obligation advice from an authorized State Life advisor, and a year-by-year illustration for your own age and budget. You can also ask us anything on WhatsApp.
Questions people ask
- Is life insurance worth it in Pakistan?
- If anyone depends on your income, yes: it is the only way to leave them a large sum from the very start. State Life's savings plans also build a lump sum with yearly bonuses, so the money is not lost if you live.
- What is the difference between life insurance and a savings account?
- A savings account holds only what you have put in, plus profit. A life insurance plan pays your family the full sum assured even if you die early in the term.
- At what age should I buy life insurance?
- As early as you can afford it. Premiums are lower when you are young and healthy, and State Life's bonus rates reward long terms.
- Can I have more than one policy?
- Yes. Many families hold one plan for protection and another for a child's education or for retirement.
- Who receives the money if I die?
- Your nominee, named in the policy. If the nominee is a child, you appoint an adult to receive it on their behalf until they turn 18.
Plans mentioned here
Keep reading
StateLife Advisors is an independent agency authorized to sell State Life products; this is not the official State Life website. Product facts and bonus rates are as published by State Life Insurance Corporation of Pakistan. Sum assured and declared bonuses are guaranteed by the Government of Pakistan; future bonus rates are not. This is general information, not religious, legal or tax advice.