Life Insurance Briefly Explained
2:03 AM
Life insurance is a term that refers to a contractual agreement between a policy holder and an insurance company wherein the insurance provider agrees to pay out an agreed sum to the designated beneficiaries of the policy (usually the insureds family) upon the insureds death for a predetermined regular fee.
In some countries it is normal to have funeral expenses covered in a insurance policy, but in the UK, companies tend to simply pay out a lump sum to the beneficiaries of the insured upon his/her demise.
Life insurance policies are legal contracts and the terms mentioned in those contracts describe the events that the insured person will be covered for. There are often circumstances of death that are not covered in a life insurance contract such as war, suicide, riot or civil commotion.
Life based contracts will usually fall into two different categories, protection policies and investment policies. Protection policies are those that provide a benefit to those parties specified in the contract, usually a lump sum, in the event of a specified scenario. Investment policies are where the main objective is to facilitate the growth of capital by regular or single premiums. Common forms (in the US anyway) are whole life, universal life and variable life policies.
The term beneficiary refers to the person who will receive the lump sum upon the death of the insured person. Usually the beneficiary can be changed at any time unless an irrevocable beneficiary is appointed. In this case, the beneficiary must grant their permission regarding any changes relating to the beneficiary.
There is a difference between the policy owner and the insured, although they are usually the same person. Say a man takes out an insurance policy on his own life; he is then the policy holder and the insured. However if his wife takes out a policy for his life, then she is the policy holder and he is still the insured.
Insurance companies do however want to put restraints on who can take out policies for someone else's life. This is because if anyone can take out a policy for anyone else's life, then there is a good chance that people will start taking out policies for people who they know will die soon or worse still, people who they intend to kill. So insurance companies sought to limit the people who can take out insurance policies on someone else's life to only those who will suffer a genuine loss if the insured were to die, i.e. family members or those who can prove that they are close friends.
Life insurance is essentially, as with most insurance contracts, a contract between the insured and the provider whereby a payment is made on a regular basis to the insurance provider by the policy holder, and upon the occurrence of one of the terms described in the contract, a lump sum (or another predetermined form of proceed) is paid out to beneficiaries defined in the contract.
In some countries it is normal to have funeral expenses covered in a insurance policy, but in the UK, companies tend to simply pay out a lump sum to the beneficiaries of the insured upon his/her demise.
Life insurance policies are legal contracts and the terms mentioned in those contracts describe the events that the insured person will be covered for. There are often circumstances of death that are not covered in a life insurance contract such as war, suicide, riot or civil commotion.
Life based contracts will usually fall into two different categories, protection policies and investment policies. Protection policies are those that provide a benefit to those parties specified in the contract, usually a lump sum, in the event of a specified scenario. Investment policies are where the main objective is to facilitate the growth of capital by regular or single premiums. Common forms (in the US anyway) are whole life, universal life and variable life policies.
The term beneficiary refers to the person who will receive the lump sum upon the death of the insured person. Usually the beneficiary can be changed at any time unless an irrevocable beneficiary is appointed. In this case, the beneficiary must grant their permission regarding any changes relating to the beneficiary.
There is a difference between the policy owner and the insured, although they are usually the same person. Say a man takes out an insurance policy on his own life; he is then the policy holder and the insured. However if his wife takes out a policy for his life, then she is the policy holder and he is still the insured.
Insurance companies do however want to put restraints on who can take out policies for someone else's life. This is because if anyone can take out a policy for anyone else's life, then there is a good chance that people will start taking out policies for people who they know will die soon or worse still, people who they intend to kill. So insurance companies sought to limit the people who can take out insurance policies on someone else's life to only those who will suffer a genuine loss if the insured were to die, i.e. family members or those who can prove that they are close friends.
Life insurance is essentially, as with most insurance contracts, a contract between the insured and the provider whereby a payment is made on a regular basis to the insurance provider by the policy holder, and upon the occurrence of one of the terms described in the contract, a lump sum (or another predetermined form of proceed) is paid out to beneficiaries defined in the contract.
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