Life insurance / life assurance is a agreement among the policy holder and the life insurance company, where the life insurance company agrees to pay a designated beneficiary a sum of money upon the occurrence of the insured persons or persons' death or other event, such as terminal sickness or dangerous sickness. In return, the policy holder agrees to pay a stipulated amount at usual intervals or in lump sums. There may be designs in some countries where bills and death expenses plus cookery for after funeral expenses should be built-in in Policy Premium. In the United States
As with the majority insurance policies, life insurance is a agreement between the life insurance company and the policy holder whereby a benefit is paid to the designated beneficiaries if an insured event occurs which is covered by the policy.
The value for the policyholder is derived, not from an real claim happening, rather it is the value derived from the 'peace of mind' experienced by the policyholder, due to the negating of adverse financial consequences caused by the death of the Life Assured.
To be a life policy the insured event must be based upon the lives of the people named in the policy.
Insured procedures that may be cover include:
Serious illness:
Life policies are official contracts and the terms of the contract describe the limits of the insured events. Specific exclusions are often written into the contract to limit the responsibility of the life insurance company; for example claims relating to suicide, scam, battle, riot and civil commotion.
Life-based contract tend to fall into two chief category:
Protection policies:
Protection policies - designed to give a advantage in the event of specified event, typically a lump sum amount. A ordinary form of this design is term insurance.
Investment policies:
Investment policies - where the chief purpose is to facilitate the increase of assets by regular or single premiums. Common forms (in the US
General Idea:
Parties to agreement:
Difference between the insured and the policy owner / policy holder, although the holder and the insured are regularly the same person. Example, if Joe buys a policy on his own life, he is both the proprietor 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 holder is the assurance and he or she will be the person who will pay for the policy. The insured is a participant in the contract, but not necessarily a party to it.
The beneficiaries receive policy proceeds upon the insured's death. The owner designates the beneficiary, but the beneficiary is not a party to the policy. The holder can modify the beneficiary unless the policy has an irrevocable beneficiary title. With an irrevocable beneficiary, that beneficiary must agree to any beneficiary changes, policy assignments, or cash value borrowing.
Contract terms:
Extraordinary provisions may concern, like suicide clauses wherein the policy becomes null if the insured commit suicide inside a particular time (usually two years after the purchase date; some states provide a statutory one-year suicide clause). Any misrepresentations by the insured on the application are also grounds for nullification. Most US states specify that the contestability time cannot be longer than two years; only if the insured dies inside this time will the life insurance company have a officially permitted to contest the claim on the source of misrepresentation and demand extra information before deciding to pay or deny the claim.
Costs, insurability, and underwriting:
The insurer calculates the policy price with intent to fund claims to be paid and organizational costs, and to create a income. The price of insurance is determined using mortality tables calculated by actuaries. Actuaries are professionals who employ actuarial science, which is based in mathematics. Mortality tables are statistically-based tables showing expected annual mortality rates. It is possible to derive life expectancy estimates from these mortality assumptions. Such estimates can be important in taxation regulation.
The three main variables in a mortality table have been age, gender, and use of tobacco. More recently in the US United States
Death proceeds:
Upon the insured's death, the life insurance company requires satisfactory evidence of death before it pays the claim. The standard minimum evidence required is a death certificate and the life insurance company claim form finished, signed (and typically notarized). If the Policy holder's death is suspicious and the policy amount is large, the insurer may examine the circumstances surrounding the death before deciding whether it has an obligation to pay the claim.
Proceeds from the policy may be paid as a lump sum or as an annuity, which is paid over time in regular recurring payments for either a specified period or for a beneficiary's lifetime.
Insurance v/s Assurance:
The definite uses of the terms "insurance" and "assurance" are occasionally puzzled. In common, in this jurisdiction "insurance" refers to providing cover for an event that might happen (flames, robbery, flood, etc.), while "assurance" is the provision of cover for an event that is certain to happen. "Insurance" is the commonly accepted term, but public by means of this explanation are responsible to be corrected. In the United States both forms of coverage are called "insurance", principally due to many companies offering both types of policy, and rather than refer to themselves using both insurance and assurance titles, they instead use just one.
Life insurance may be separated into 2 basic parts – temporary and permanent or following subparts - term, universal, whole life and endowment life insurance.
Term Insurance:
Term assurances provide life insurance coverage for a specified term of years in replace for a particular premium. The policy does not accumulate cash value. Term is commonly measured "pure" insurance, where the premium buys security in the event of death and nothing else.
Three key factors to be considered in term insurance:
1. Face amount (protection or death benefit),
2. Premium to be paid (cost to the insured), and
3. Length of coverage (term).
Permanent Life Insurance:
Permanent life insurance is life insurance that remains in-line until the policy pays out, unless the holder fails to pay the premium when due the policy expires OR policies lapse. The policy cannot be canceled by the life insurance company for any cause except scam in the application, and that cancellation must occur within a time of time defined by law (usually two years). Permanent insurance build a money rate that reduce the amount at risk to the insurance company and thus the insurance cost over time.
1. Whole life coverage
2. Universal life coverage
3. Endowments
4. Accidental Death
