What is Life Insurance
Life Insurance is the legal contract between insurer and the insured, in which insurer promises to pay certain amount of money on the death of insured to his nominee. Insurer here is the insurance companies and insured is the policy holder. Policy holder has to pay premium amount for the insurance period to the insurance company. And if he died in this period then insurance amount will be paid to his nominees otherwise after insurance period insured person will get a lump sum amount which would less than the insured amount from the insurance company.
Insurance company is known as assurer and insured person is known beneficiary. Insurance amount is known as ‘benefit’. Death benefit is amount, is the money which insurance company would pay on death of insured person and cash benefit is the amount which company would pay after insurance period when death not occur. Premium is the amount which is being paid by insured person during insurance period to insurance company. It depends upon the face value of policy.
Types of Life Insurance
Term Insurance- This provides Life Insurance for specified period. If even occur in between this period then only beneficiary is liable to get benefit otherwise not. “Pure Risk” factor is there.
Permanent Life Coverage
The insurance policy remains active until insured pays the premium. It can be cancelled by insurance company expect fraudulent grounds. Whole life coverage, endowment policy universal life insurance policies are its types.
Whole Life Coverage
This extends to lifetime of insured. The premiums are approximately equal. This is based on average life expectancy of the policy holder. Policy holder can get a cash benefit in between of insurance period as the loan on policy. Insurance company would charged interest on the loan amount but this amount is tax free. If this loan amount remains unpaid until death of insured person then insurance company would subtract this amount from the death benefit and remaining would be paid to nominee. Benefit of this is that cash value and death benefits are quite predictable and guaranteed.
Universal Life Insurance
This has flexibility in premiums, cash benefit and death benefit. Means these are not fixed and can be changed according to interest rate. If lower death benefit has been chosen by insured person, the amount of premium accordingly decreased.
The cumulative amount of premium with interest rate is equal to death benefit after certain age of insured person. This age is known as Endowment age.
Group Life Insurance
This is institutional type of life insurance. It is like common insurance policy for group of people like family, company employees, and members of association.
Accidental Death Policies
In these, the death benefit would pass to nominee when insured person dies in any accident. If he loses any limb or any dysfunctionality occurs due to accident, insurance company is liable to pay him benefit.