Life Insurance is a term of the contract that is established between an insurance policyholder and an insurer, also known as an assurer, in which the insurer makes promises to pay a nominated beneficiary an amount of money (benefits) in return for a premium, upon the demise of an insured person (most times the policyholder). Based on the type of contract established, other events such as critical and terminal illness can also generate a payment. The policyholder typically pays a premium, either he pays it regularly or as a lump sum. Other expenses, such as funeral expenses, can also be included in the benefits plan.
Life policies are regarded as legal contracts. Additionally, the limitations encountered during insured events are being described by the terms of such policies. Often time, the contract contains specific exclusions that are intended to limit the liability of the insurer. Examples of these exclusions are cases of fraud, suicide, civil commotion, and war. The current existing life insurance is similar to the asset management industry. Products offered by life insurers have been diversified into various retirement vehicles such as annuities.
There are two major categories of life-based contracts:
1. Protection Policies:
The protection policies are designed to provide a benefit, typically a lump sum payment, in the event of a specified occurrence.
2. Investment Policies:
The main objective of the investment policy 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.
TYPES OF LIFE INSURANCE
There are different types of life insurance policies that work in different ways. Whether you are looking to protect your mortgage or leave something behind for loved ones, there’s a life insurance policy to suit your situation:
1. Level Term Life Insurance:
In a situation where an insurer dies during the policy term, the insurer will pay a lump sum agreed at the start of the policy.
2. Whole Life Insurance:
Sometimes referred to as “straight face” or “ordinary life”, this insurance policy covers you for your entire life. The insurer invests your premiums in a fund of stocks, shares, property and other investments until a claim is made. A result of that is that the insurer may increase the premium if the fund performs poorly. However, the amount of cover it pays out remains unchanged.
3. Mortgage Protection Insurance:
This is also known as decreasing term insurance. In a case where an individual dies, the person’s insurer would have to pay the estimated amount of cover at that time. The amount of cover reduces according to the balance on the individual’s mortgage.
4. Critical Illness Insurance:
Should the insurer be diagnosed with a critical illness pre-defined by the insurer (such as cancer, heart attack or cardiac arrest, Leukaemia, Lesch-Nyhan Syndrome, Stroke, loss of limb, Diabetes, and other critical illness), the insurer will pay out the amount the deceased is covered for.
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