Basics of Life Insurance
A life insurance, also known as a life assurance policy, assures the policy holder of monetary compensation in cases of death, illness, or disability, depending on the contents of the contract. The insurance or assurance policy holder engages in a contract between him or herself and an insurer where the insurer agrees to pay a sum of money on the occurrence of the policy holder's death. The policy holder, for his or her part, pays the insurer a certain amount at regular intervals which is called the premium.
Like most insurance policies, a life insurance or life assurance policy is a contract between the policy owner or policy holder and the insurer wherein, in exchange for a monthly payment up to a certain period, a benefit is paid to a certain beneficiary or beneficiaries should an insured event occurs. The policy is considered a life insurance policy if the insured is based on the life or lives of the persons named in the policy.
Life policy insurance often covers events such as requirement for long-term care, disability due to ill health, diagnosis of terminal illness, diagnosis of critical illness, death and accidental death.
The presentation of life policies are often of the same types as legal contracts with terms that describe the limitations of the insured events in the policy. Some specific exclusions in coverage are often written into the contract which limits the liability of the insurer such as in cases of death or injuries as a result of war, riot, and any other civil commotion.
Life insurance policies include three parties in the contract. These are the insurer, the insured, and the policy owner or policy holder, though the owner and the insured are often the same person.
The beneficiary is the one who receives the proceeds upon the death of the insured. The policy owner designates the beneficiary of the contract but the beneficiary is not party to the policy. The owner of the policy can change the beneficiary at any time unless the policy has an irrevocably beneficiary designation in which case the beneficiary must agree to any changes, policy assignments of cash borrowing.
Upon the death of the insured, the insurer will require an acceptable proof of death before it pays any claim. This is usually in the form of a death certificate and the insurer's claim form completed, signed and notarized. If the death is suspicious and the policy amount is sufficiently large, the insurer may investigate the circumstances of the death before releasing any claims. The proceeds from the policy can be paid as a lump some or as an annuity that is paid over time in regular recurring payments for a specified period or for a beneficiary's lifetime.
Life insurance may be divided into two basic classes which are temporary and permanent.
Temporary life insurance is a type of insurance policy where the coverage is only for a specified number of years for a specified premium. The insurance policy does not accumulate cash value. This type of life insurance policy is considered as “pure” insurance wherein the premium buys the owner protection in the event of death and nothing else.
Permanent life insurance, on the other hand, remains in force until the maturity of the policy, unless the owner of the policy fails to pay the premium when it is due. Permanent insurance builds cash value which reduces the risk of the insurance company and, as a result, the insurance expense over time.
There are certain risks in acquiring an insurance policy. Some insurance companies include unfair conditions and limitations in their contracts which they seek to hide from the policy holder through legal language which the common person may find hard to decipher. There are also cases where the system of life insurance has been exploited through causing the death of a policy holder in order to collect the premium.
Currently, life insurance policies are experiencing an increase in applications as public awareness of acquiring insurance against possible death, illness and other disasters increase. Also, the increasing life expectation of the general population has increased the need for pensions which is a type of life insurance policy.
by Maria-Goldsmith 19 years ago