Life insurance (or life assurance, especially in the Commonwealth of Nations) is a contract between an insurance policy holder and an insurer or assurer, where the insurer promises to pay a designated beneficiary a sum of money (the benefit) in exchange for a premium, upon the death of an insured person (often the policy holder). Depending on the contract, other events such as terminal illness or critical illness can also trigger payment. The policy holder typically pays a premium, either regularly or as one lump sum. Other expenses, such as funeral expenses, can also be included in the benefits.
Life policies are legal contracts and the terms of the contract describe the limitations of the insured events. Specific exclusions are often written into the contract to limit the liability of the insurer; common examples are claims relating to suicide, fraud, war, riot, and civil commotion.
Modern life insurance bears some similarity to the asset management industry[1] and life insurers have diversified their products into retirement products such as annuities.[2]
Life-based contracts tend to fall into two major categories:
- Protection policies: designed to provide a benefit, typically a lump sum payment, in the event of a specified occurrence. A common form—more common in years past—of a protection policy design is term insurance.
- Investment policies: the main objective of these policies is to facilitate the growth of capital by regular or single premiums. Common forms (in the U.S.) are whole life, universal life, and variable life policies.
Life insurance is a contract between an insurance policy holder and an insurer, where the insurer promises to pay a designated beneficiary a sum of money (the “benefits”) upon the death of the insured person. Depending on the contract, other events such as terminal illness or critical illness may also trigger payment. The policy holder typically pays a premium, either regularly or as a lump sum. Other expenses (such as funeral expenses) are also sometimes included in the benefits.
Life insurance is a contract you sign with an insurance company, obligating it to pay a death benefit of a certain value to thebeneficiaries you name.
In most cases, the payment is made at the time of your death, but certain policies allow you to take a portion of the deathbenefit if you are terminally ill and need the money to pay for healthcare.
You may select either term or permanent insurance. With a term policy, you are insured for a specific period of time. Whenthe term ends, you must renew the policy for another term or change your coverage. Otherwise, you’re no longer insured.With a permanent policy, you can buy coverage for your lifetime.
You pay an annual premium, typically billed monthly or quarterly, for the coverage. The insurer sets the cost, based on yourage, health, lifestyle, and other factors. With a permanent policy, your premium is fixed, but with a term policy it typicallyincreases when you renew your coverage to reflect the fact that you’re older.
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. A common form of this design is term insurance.
- Investment policies – where the main objective is to facilitate the growth of capital by regular or single premiums. Common forms (in the US) are whole life, universal life and variable life policies.
Parties to contract
Chart of a life insurance
There is a difference between the insured and the policy owner, although the owner and the insured are often the same person. For example, if Joe buys a policy on his own life, he is both the owner and the insured. But if Jane, his wife, buys a policy on Joe’s life, she is the owner and he is the insured. The policy owner is the guarantor and he will be the person to pay for the policy. The insured is a participant in the contract, but not necessarily a party to it. Also, most companies allow the payer and owner to be different, e. g. a grandparent paying premiums for a policy on a child, owned by a grandchild.
The beneficiary receives policy proceeds upon the insured person’s death. The owner designates the beneficiary, but the beneficiary is not a party to the policy. The owner can change the beneficiary unless the policy has an irrevocable beneficiary designation. If a policy has an irrevocable beneficiary, any beneficiary changes, policy assignments, or cash value borrowing would require the agreement of the original beneficiary.
Death proceeds
Upon the insured’s death, the insurer requires acceptable proof of death before it pays the claim. The normal minimum proof required is a death certificate, and the insurer’s claim form completed, signed (and typically notarized).[citation needed] If the insured’s death is suspicious and the policy amount is large, the insurer may investigate the circumstances surrounding the death before deciding whether it has an obligation to pay the claim.
Payment from the policy may be as a lump sum or as an annuity, which is paid in regular installments for either a specified period or for the beneficiary’s lifetime.
Life Insurance
- Age and gender of policy holder
- Medical history/pre-existing conditions (you fill in form, but many companies also use database of Medical Information Bureau)
- Family medical history (For instance, did your parents have a history of heart disease or cancer?)
- Results of medical exam (various tests usually required for higher amounts of insurance; the higher the value the more stringent the criteria). Typical tests include:
- Cholesterol level
- Blood sugar level
- Blood pressure
- Weight
- Urine tests
- Other blood tests
- EKG
- Stress test
- X-rays
- Smoker or not
- Mental health record
- Occupation
- Lifestyle issues, such as leisure activities that the insurance company considers risky (For example, not just bungee jumping or race car driving but mountain climbing and scuba diving may concern an insurer.)
- Driving record
- Where you travel regularly
- Features, coverages and limits selected