A Life Insurance Policy Is A Contract Drawn Up Between The Policyholder And The Insurance Company
Life insurance is a contract signed between the insured who is also known as planholder and the insurer which is an insurance company. This contract is essentially an undertaking by the insurance company to pay the insured sum of money in the event of death or critical illness.
To bring the contact into effect the policyholder either pays a lump sum on commencement or agrees to make payments to the insurer on a regular basis for a stated period of time. In both cases the money paid is known as the plan premium. In a lot of countries life insurance also means providing for the payment of funeral expenses in addition to the payment of the sum assured. However in countries like America plan payouts are normally only for the sum assured on the death of the insured.
The amount that is agreed upon in the policy is normally paid to the beneficiaries of the insured in the case of the death of the insured and therefore the planholder gets peace of mind in knowing that his or her beneficiaries are going to be provided for following his or her death.
Although in some cases the sum assured can be paid out before death where the planholder is diagnosed with an illness that is serious in nature, to keep the liability of the insurer within workable limits, events like death or serious injury arising out of riot, war, certain natural disasters and suicide are not insured.
Life insurance plans come in a variety of different forms and can provide not just protection but also serve as an investment vehicle. For example, a lot of term life insurance policies are intended strictly to provide protection for a set period of time and will only pay out if death or serious illness occurs during the set term. If no such event occurs then the policy will simply lapse having no value.
By contrast, many whole life insurance and universal life policies remain in force throughout the life of the policyholder and pay out on the onset of critical illness or death. These policies do however also gain a cash value which is based on the value of the investment supporting the plan and the policyholder is permitted to take some or all of this value from the plan in accordance with the terms and conditions of the contract. This form of plan is often used to provide a savings vehicle for things like the payment of education fees or the provision of a lump sum for retirement.
Life insurance is also commonly used in business, especially within partnerships, to protect the business in the event of the death of somebody with a financial stake in the business. In this case it is normal for one individual to buy a policy and act as the policyholder and beneficiary with another individual being named as the insured.
All life insurance policies are different and it is vital for you to know the difference between whole life insurance and term insurance before rushing out to get yourself a number of free life insurance quotes
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