Life insurance is a contract between the insurer and the policyholder whereby a benefit is paid to the designated beneficiary if an insured event occurs which is covered by the policy. For a life policy, the insured event must be based upon lives of the people named in the policy.
Insured events can be :
Conditions which might be insured by forms of insurance or riders on life insurance policies can be :
- Need for long term care
- Diagnosis of a terminal illness.
- Diagnosis of a critical illness.
- Disability due to ill health.
- Permanent disability.
Life Policies
Life policies are legal contracts and the limitations of the insured events are described by the terms of the contract. The contract includes specific exclusion to limit the liability of the insurer, for example :
- Claims relating to suicide
- Fraud
- War
- Riot and civil commotion
Life based contracts tend to fall into two major categories :
- Protection policies - designed to provide a benefit in the event of specified event, typically a lump sum payment.
- Investment policies - the main objective is to facilitate the growth of capital by regular or single premiums.
Application of Life Insurance
Life insurance actuaries look an individual’s age, sex, health and habits and decide when someone with a specific profile is most likely to die. They then consider how much coverage the buyer wants to purchase and set the premiums accordingly. There are two main types of plan to choose from, term and whole life insurance :
- Term Life Insurance
- This is the cheapest option and it pays out only if the holder dies while the policy’s fixed-length term is in force.
- If the holder survives until the end of the term, they get nothing back. People often time their insurance to run only until a big family commitment, such as the children’s education, has been passed.
- Whole of Life Insurance
- As the name suggests, these policies remain in force through the course of the buyer’s life.
- It follows that the insurance company will have to pay out in almost every case and premiums are higher than those charged on term life insurance plans.
- Some policies demand that premiums be paid all the way up to the holder’s death. Others become paid-up at a certain age and waive premiums from that point on.
There are a number of different types of Term and Whole of Life Insurance plans on the market. The coverage provided will depend on the type of plan taken out. Life insurance and policy options vary from according to need. You should either research the options or take independent advice to ensure not to pay too much for coverage you do not need.
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