Life Insurance - Understanding Life Insurance

By Compuquotes Team on January 27th, 2009

Life insurance is an agreement between an insurer 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 insurer 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.

The stipulations of an insurance contract normally limit the obligations and liability of the insurer to the policy payer. Exclusions are written off in the contract to delimit the coverage of the life insurance policy purchased by a policy owner.

Life-based insurance contracts are classified in two: protection insurance and investment insurance. Term life insurance is an example of protection insurance policy. In this insurance, only a specified event and term is covered by the insurance policy. In the occurrence of the specified event, the beneficiaries of the insured will be paid the insurance claims. Whole life insurance is an example of investment insurance. In this policy, the insured will be covered by insurance throughout his lifetime. In the event of his demise, the beneficiaries will be paid death benefit.

The individuals that concern insurance contracts include the insurer, policy owner, the insured, and his beneficiaries. The insurer is the party that will pay death benefits to the beneficiaries of the insured in the event of the insured's death. The policy owner is most oftentimes also the insured person. However, in certain cases, the policy owner is only the purchaser of the insurance, and the insured is a different person from the policy payer. For example, a wife buys insurance for her husband. The husband is the insured person, while the wife is the policy payer, since she is the person responsible for paying the monthly insurance premiums. The beneficiaries will receive the death benefits only in the demise of the husband - the insured person. Beneficiaries are usually the dependents of the insured who will receive insurance claims at the occurrence of the death of the insured. Beneficiaries may either be individuals or organizations.

Generally, the cost of a life insurance for a policy payer will be based on the insurance company's calculation of insurance policy prices considering altogether the funding of insurance claims to be paid, the administrative costs, and the profit for insuring a person. The price of the insurance is normally based on mortality tables that are computed by actuaries. These actuaries are the ones responsible for the calculation of these tables with the use of actuarial science that is based on probability and statistics. Life expectancies are also essential to computation of insurance prices.

The occurrence of the insured's death will have his beneficiaries be able to receive the death benefits upon their presentation of proof of death. Life insurance companies typically require death certificates and insurer's claims before they pay the beneficiaries the insurance benefit. In some cases, insurers investigate on a suspicious death of the insured to determine if they are obligated to pay the death benefits to beneficiaries.

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