Life Insurance Meaning, Definition, Types & Examples 2023

Life insurance is a contract between of two people: The first one is Insurer (Insurance Company) and the second one is Policyholder.

So this is the contract between two that only states that the policyholder shall pay monthly, quarterly, semi-annually, annually or in one lump sum to the insurance company.

And if you invest in insurance then once the policy got mature then it wold give you the maturity as return.

So in return, the insurance company will make a lump sum financial payment to the beneficiary or nominee on the death of the insured.

At the time of applying for this contract insurance policy, the contract form is filled at the very beginning.

So friends, In this article we will provide complete information about Life Insurance meaning and its types.

We will also know about how it works and what are its core features in the world.

So please read this article carefully and we assure that you will not need to read any other articles further more.

What Is Life Insurance?

Most of the people must be familiar with the name  “Life Insurance”. There are many different types of insurance that are being sold in the market by different companies which cover everything from the accidental death of the insured person to the funeral expenses.

Coming to the another definition: “Life insurance is a financial product that is sold through any number of registered insurance companies”.

Under this product, whenever a person pays a regular premium, in return for the insurance company, the designated beneficiaries receive the covered amount after the death of the person as per the covered insurance.

There are many tips when buying Life Insurance for the first time. To know in detail Click here.

How does Life Insurance work?

As you know the insurance is an investment contract between the policyholder and the insurance company under which there is a protection against the unexpected.

In this there are only two things happen that is- The person who is insured and if something happens to the insured, the beneficiary will usually be paid the sum insured under the contract of insurance amount to provide financial care for one or more family members of the person.

If you have to take an insurance policy, then first of all you should determine your requirements and only then start buying an insurance policy.

I have seen that many people buy insurance as a form of income protection (Term Insurance which will be given to the nominee or legal hire after the death of policyholder), there is nothing wrong with that.

But you have to insure from his insurance company whose claim ratio is very good. That is why you should never face any problem in future.

Let me now assume that now you have liked an insurance policy plan from any company and now you are going to get your insurance with that insurance company.

When you insure yourself with an insurance company, you have to go through an underwriting exam (Mostly underwriting exam is held in Term Insurance Policy) with the insurer as per your age so that the underwriter’s team can find out your risk factor, how much your premium will cost as per your age.

Let me tell you that any insurance company works only on the risk factor. When the age of the person is less then the risk factor is also less and when the age of the person is more then the risk is even higher.

As your age increases, your premium amount also increases with age. The underwriter’s team investigation can include everything from health questions to medical tests or exams.

If you want to know more then you are requested to check Forbes.

How Much Life Insurance Coverage Do You Need?

There are many questions rise in your mind when you are going to buy an insurance policy. Even if you sign a contract with any insurance company while taking insurance, then you will have to pay the fixed premium according to that insurance contract.

When you die, either your beneficiaries who are registered as nominees or one of your family members or others will receive the death benefit specified in your contract.

First of all, you have to determine how much money you need in your future or just say how much money you will leave for your dependent that they will get financial support to a great extent in their future life.

You have to decide how much money you will need for the future of your family members? In other words, of course you cannot put a price on human life, but we also believe that human beings are mortal creatures and if you die tomorrow, how much do you think your family will suffer financially?

Let us now assume that you have determined how much money your family will need without you.

Now you also have to make sure that whatever premium amount is coming on your fixed amount according to your age, can you afford it.

Let me tell you this in advance that the more coverage you keep, or the more premium you pay, the more your death benefit will also be covered.

What is a life insurance premium?

The premium of any insurance is the amount or rate at which you pay to keep your policy active in exchange for your coverage.

The amount of premium of any insurance is determined by Amount of Death Benefit, Age of Person, Person’s Health, Gender and his Family History.

Types of Life Insurance

Basically there are two different types of life insurance: Term Life and Permanent life. Let us now understand both the types of insurance one by one.

  • Term Life Insurance

As the name suggests, Term Life policy runs for a predetermined period of a certain term.

This insurance policy can have a tenure of either 10 years, 20 years or even up to 30 years. Because the scope of term life policies is limited.

Now let us know about this Insurance policy in breif.

Basically, There are also two types of Term Life Insurance policy.

One is The rising Premium Term which renews annually at higher rates while the Level Premium Term has a fixed rate for a predetermined number of years.

Since the return is available only after death, therefore, this insurance policy cannot be called an investment.

  • Permanent Life Insurance

Permanent life provides lifelong insurance coverage for you. That is why this insurance policy is more expensive than term life. You can call this policy as an investment as it acts as a savings portion.

Usually in permanent Life , you can borrow on the cash value of the policy or withdraw a portion of the surrender value of the deposited amount.

And even if you decide to terminate the policy for any reason, you can get the cash value minus any surrender charges.

Basically there are also many different types of Permanent Life named as below:

Whole Life Insurance

This insurance policy is an insurance that provides a fixed death benefit and a cash value (maturity amount) after the policy term is over.

You will be surprised to know that the maturity amount in this insurance is guaranteed. I this policy you can also pay dividends which you can either use to pay premiums or add to the cash value.

Universal Life Insurance

Universal Life is an insurance that lasts for your entire life. We know universal life as cash value insurance.

This is one such beam in which the premiums paid by you are split into 2 different accounts. One is for your life and the other for your investments or savings.

There are also types of Universal Life named as:

  • Indexed Universal
  • Guaranteed Universal
  • Variable Universal.

Burial Insurance

Burial Insurance is also a type of insurance in which the insured has a short whole life policy with a small death benefit. Mainly Burial Insurance is only designed to cover only the cost of funeral / funeral expenses.

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