The gift of `Life` is considered as the most precious possession in this world. Not only our lives but we also pray for the well-being of our near and dear ones. To live life smoothly, millions of families worldwide depend on monetary security earned by family members. Life is also unpredictable and with the occurrence of certain unanticipated incidents, be it sudden demise or serious sickness of an earning family member it becomes difficult for those dependants to get monetary support. Since we cannot control these unexpected events, Life Insurance ensures that the insecurity of a monetary source does not prevail in future for those dependants.
Life insurance or life assurance is an agreement between the policy holder and the insurer, where the insurer consents to reimburse an amount of capital upon the occurrence of the insured person`s or person` death or any other incident, such as fatal illness or critical infirmity. In return, the policy holder consents to reimburse a predetermined capital called a premium at regular hiatus or in lump sums.
In most insurance policies, life assurance is an agreement between the insurer and the policy holder whereby an advantage is reimbursed to the allocated recipients if an insured incident takes place which is capped in the policy guidelines.
The price for the policy owner is derivative, not from the real asserted incident, rather it is the price derived from the wellness experienced by the policy owner, due to the opposing of undesirable fiscal outcomes occurred by the sudden demise of the Life Insured.
To have a life policy the insured occurrence must be based on the lives of the individuals mentioned in the policy. Life policies are authorized agreements and the conditions of the agreement which states the restrictions of the insured occurrences. Specific omissions are often mentioned into the agreement to restrict the liability of the insurer; for example claims relating to suicide, scam, conflict, insurgence and civil turmoil.
Life-based contracts tend to fall into two major categories:
Types of Life Insurance
- Protection policies - aimed to offer an advantage in the event of a particular event, normally lump sum compensation. A common structure of this design is named insurance.
- Investment policies - the main purpose of this policy is to assist the expansion of capital by regular or single premiums. In United States, common structures are whole life, universal life and variable life policies.
Life insurance may be classified into two basic categories temporary and permanent or following under subcategories - term, universal, whole life and endowment life insurance
1. Temporary Term Insurance
: Term insurance offers for life insurance coverage for a particular period of years for an allotted premium. The policy does not gather cash rate. Term is usually regarded as a pure assurance, where the premium purchases fortification in the occasion of sudden death.
There are three major aspects to be taken care of in term insurance:
- Face amount (protection or death benefit),
- Premium to be paid (cost to the insured), and
- Length of coverage (term).
Many insurance firms sell term assurance with diverse blend of these three parameters. The face value can remain steady or turn down. The term can be designed for one or more years. The premium can remain steady or upsurge.
A policy owner insures his life for a particular duration. If he dies before that allotted term is over, his appointed recipient gets a payout. If he does not die prior to the term is over, he gets nothing. Usually, if an insured individual commits suicide during the first two policy years, the insurer will reimburse the premiums compensated. However, a death advantage will generally be rewarded if the suicide takes place after the two year phase.
2. Permanent Life Insurance
: Permanent life insurance is life insurance that stays in-line until the policy matures or unless the policy holder fall short to compensate the premium when unpaid. The policy cannot be terminated by the insurer on the basis of any grounds except scam in the application, and that termination must take place within the duration of time allocated by law. Permanent insurance establishes a cash rate that deteriorates the value at risk to the insurance firm and thus the insurance expenditure over time.
The four types of permanent insurance are
Whole life coverage
: Whole life insurance offers for a steady premium, and a cash rate table incorporated in the policy ensured by the firm. The major benefits of whole life are assured death advantages, assured cash rates, predetermined annual premiums; expense rates will not decrease the cash rate mentioned in the policy.
Universal life coverage
: Universal life insurance (UL) is the latest insurance product aimed to offer permanent insurance treatment with greater suppleness in premium imbursement and the probability for a higher internal rate of return. There are many forms of universal life insurance policies which incorporates interest sensitive insurance, variable universal life insurance, and equity indexed universal life insurance.
: Limited-pay life insurance is another form of life insurance, in which all the premiums are reimbursed over an allotted period after which no further premiums are outstanding to sustain the policy. Restricted pay periods incorporate10-year, 20-year, and paid-up at age 65.
: Endowments are policies in which the cash rate is mentioned in the policy and is equivalent to the death advantage (face amount) at a definite age. The age which marks the beginning of this policy is termed as the endowment age. Endowments are significantly more costly, in context of yearly premiums, than either total life or universal life because the duration in which the premium is paid is reduced and the endowment date is earlier.