Life insurance (or assurance) is and agreement between an insurance providing company and the individual that takes out a policy with them. The agreement is based idea that for a recurring fee, the insurance company will payout an agreed sum to the beneficiaries of the insured (most of the time this will be family) upon the insureds death.
In some countries it is normal to have funeral expenses covered in a insurance policy, but in the UK, companies tend to simply pay out a lump sum to the beneficiaries of the insured upon his/her demise.
A life insurance policy will contain contract terms and these terms will include death circumstances for which the insured will not be covered, and the ones for which they will be. Death circumstances that will generally not be covered by life insurance are suicide, riot or war.
There are two main types of life contracts; protection policies and investment policies. Protection policies will be beneficial to pre-specified parties (usually in the form of a lump sum) in the event of a scenario mentioned in the contract. Investment policies use regular premiums (payments) in order for capital to grow, some common forms are universal life, whole life and variable life policies.
The term beneficiary refers to the person who will receive the lump sum upon the death of the insured person. Usually the beneficiary can be changed at any time unless an irrevocable beneficiary is appointed. In this case, the beneficiary must grant their permission regarding any changes relating to the beneficiary.
Although the policy holder and the insured are usually the same person, they are not always. For example, if a man takes out life insurance on his own life, then he is the policy holder and the insured, and this is usually how it works. However, if his wife takes out the policy on his life, then she is the policy holder and he is the insured.
In cases where policy owner differs from the insured, insurance companies are looking to limit who can take out a policy for who’s life. This is called an insurable interest requirement and it means that the person taking out the policy would suffer a genuine loss if the insured should die. This is to stop people taking out policies on people who they expect to die and aren’t particularly concerned if they do or not, and so as not to increase the chances of murder being committed by someone who has taken out a policy for someone, and then intends to kill them to reap the rewards.
As is the case with most general insurance policies, life insurance is a contract between the insurer and the insured where a payment is made to pre-designated parties upon the occurrence of an event covered in the insurance policy, in the case of life insurance, this is usually death.
