Life insurance is simply an agreement between an insurance policy payer and the insurer. In the agreement, the policy payer is ensured that a death benefit will paid to his or her beneficiary or beneficiaries in the event of his or her death. The policy payer pays a premium in exchange for the death benefit. The insurance premium can be paid as a lump sum or in monthly payments. The coverage of an insured person’s life is determined by life policies. The contract covering the agreement between the insurer and policy owner places limits on what events are covered by the life insurance policy. The event that is usually covered by the insurance policy is the death of the insured. Other events such as accidents, sickness and untimely deaths may also be included in the life insurance policy.
The liability and obligations of the insurance are limited by stipulations stated within the insurance contract. There are exclusions that are also stated in the coverage that limit the life insurance policy coverage that the policy owner receives.
There are two major classifications of life insurance contracts. There is investment insurance and protection insurance. One example of protection insurance is term life insurance. With this type of insurance only a specified term and events are covered in the insurance policy. If the specified events occurs, the insured’s beneficiaries will be paid. An example of a type of investment insurance is whole life insurance. With a whole life insurance policy, the insured is covered by the insurance policy throughout his or her entire lifetime. In the event of the insured’s death, their beneficiaries are paid the policy’s death benefit.
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The parties to an insurance contract include the policy owner, the insurer, the insured and the insured’s beneficiaries. The insurer pays the death benefit to the insured’s beneficiaries when the insured passes away. Usually the insured person is also the policy owner. However, there are cases where the insured is not the same person as the policy payer. For example, if a husband buys insurance for his wife the wife is the insured and the husband is the policy payer. The husband is the one who is responsible for paying the insurance premiums. If the wife dies, then the beneficiaries will receive the death benefit on the policy. Beneficiaries of the insured could be organizations or individuals. Individuals are often the insured’s dependents but not always.
The policy payer’s cost for a life insurance policy is generally based on a calculation made by the insurance company that takes into account claims to be paid, administrative costs and expected profit for insuring the individual. Actuaries provide mortality tables that the insurance companies use to determine the price of insurance. The tables are based on actuarial science which uses statistics and probability to come up with their calculations. Life expectancy is also a factor in computing insurance prices.
The beneficiaries receive the death benefit in the event of the insured’s death and after the insurance company has been provided with proof of death. Insurers usually required that a claim be filed and a death certificate be presented before any death benefits are paid out to the beneficiaries. Insurers may investigate in cases where the death appears to be suspicious to see if they are under any obligation to pay the beneficiaries the death benefit.
