Life insurance
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The foundation of life insurance is the recognition of the value of a human life and the
possibility of indemnification for the loss of that value. |
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—Economic place of insurance and its relation to society |
Life insurance is a contract
between the policy holder and
the insurer, where the insurer promises
to pay a designated beneficiary a sum of
money (the "benefits") upon the death of the insured person. Depending on the contract, other events such as
terminal illness or
critical illness may also trigger
payment. In r eturn, the policy holder agrees to pay a stipulated amount (the "premium") at regular
intervals or in lump sums. In some countries, death expenses such as funerals are included in the premium;
however, in the United States the predominant form simply specifies a lump sum to be paid on the insured's
demise.
The value for the policy owner is the 'peace of mind' in knowing that the death of
the insured person will not result in financial hardship.
Life policies are legal contracts and the terms of the contract describe the
limitations of the insured events. Specific exclusions are often written into the contract to limit the liability
of the insurer; common examples are claims relating to suicide, fraud, war, riot and civil commotion.
Life-based contracts tend to fall into two major categories:
- Protection policies – designed to
provide a benefit in the event of specified event, typically a lump sum payment. A common form of this design
is term insurance.
- Investment policies – where the
main objective is to facilitate the growth of capital by regular or single premiums. Common forms (in the US)
are whole life,
universal life and variable life policies. Business Insurance
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