Life insurance is a contract between an insurance company and a policy payer in which the policy payer, which is usually the insured, is ensured to have his beneficiary or beneficiaries paid a death benefit by the insurer in the event of his death. The policy payer will gradually pay the benefit through payment of premium. This premium is either paid on a monthly basis or on lump sums. Life policies determine the coverage of the insured person’s life. The contract between the policy owner and the insurance company limits the events that are covered by life policy. A death of an insured is the usual event covered by insurance. Some other events that are included in the life policy are sickness, accidents, and untimely deaths. Life Insurance is a policy that protects against financial loss as a result of death. Upon your death, the insurance company that you have your policy with will pay your chosen beneficiary a specific lump sum, assuming all the guidelines of the policy have been met.
Life-based insurance contracts are classified in two: protection insurance and investment insurance. Term life insurance is an example of protection insurance policy. Whole life insurance is an example of investment insurance. Term life insurance provides coverage for a specific period or term. It is sometimes referred to as temporary insurance. The policy pays cash benefits to the beneficiary if death occurs within the specified period or term. Term insurance provides protection for a specified period of time. The insured must die within the specified period for the beneficiary to be paid the benefit. If the policy is not renewed on the expiration of the specified period or term, the coverage ceases. There are no cash benefits if the death occurs after the coverage ceases. A term life insurance policy has no financial investment value and most of the premium goes to pay for the coverage. A whole life insurance policy is one can keep for as long as you live and that will pay the face amount to your beneficiaries. Generally there are two types of whole life insurance policies: participating and non participating. A participating policy has cash value and earns dividends if the life insurance company performs efficiently, but dividends are not guaranteed. A non participating policy has cash value. It does not pay dividends. If you keep a whole life insurance policy for a specific period of time, the policy will build up guaranteed cash values which pay a guaranteed interest rate each year accumulating a considerable sum over time.
There can be up to four parties in an insurance contact – insurance company, policy owner, the insured, and beneficiaries. The insurance company is the entity that issues the insurance policy and will pay the death benefits to the beneficiary on the death of the insured. The policy owner is the person who purchases the policy and pays the premium. Generally the policy owner and the insured are the same person. The insured is the person on whose death the benefits are payable to the beneficiary. The beneficiary is the person to whom the insurance company will pay the benefits on the death of the insured.
