Life insurance is a long-term insurance cover where the insurance company promises to pay the insured’s policy beneficiaries a lump-sum of money after his death. The insured pays premiums for his dependencies so that the latter benefit from the policy after his death. Life insurance is categorised into term-life and permanent-life policies and this article explains how does life insurance work.
Types of life insurance products
Term-life insurance Term-life insurance provides cover for a specified period of time in which the insured’s dependencies benefit from the policy if he dies during the term of the policy. It is important to know how does term-life insurance work like how and when the policy pays out, why the premiums are non-refundable and what premiums are payable in order to make the right decision. Permanent-life insurance Permanent-life provides insurance cover up until the insured dies and does not expire. The premiums are payable throughout the life of the insured. Permanent life insurance is further divided into whole life, endowment, limited pay and universal life. The most common types are the whole-life cover which runs until the death of the insured and the life endowment policy where the cash-built equals the death benefit at a certain endowment maturity date.
What is covered by life insurance?
Life insurance covers the insured against natural death and the money is paid to the beneficiaries only if the insured dies. Sometimes, the insured may claim from the insurance company when he is critically or terminally ill but this depends on the conditions of the policy.
Major exclusions of life insurance
Life insurance does not pay if the death of the insured is a result of suicide or terminal illness resulting from an attempted suicide. Also, the policy does not pay if the death of the policy holder has been facilitated by his beneficiaries.
Why taking life insurance
To guarantee constant income Life insurance guarantees constant income for day-to-day needs like food, shelter and school to the beneficiaries after the breadwinner dies. Form of investment Life insurance products are viewed as a form of investment because the build-up cash will benefit the insured’s dependencies in future. Also, policies like the life endowment, the build up-cash can either be paid back to the insured or reinvested after the endowment maturity date.