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Life Insurance

A contract that is made between a policy holder and an insurer where the insurer pledges to pay a sum of money to the designated beneficiary upon the death of the insured person is called a Life Insurance. Depending on the stipulations in the contract, payments may also be made to the beneficiary when the following occurs;

  • Terminal illness

  • Critical illness

The policy holder usually regularly pays a premium in monthly instalments or lump-sum. Funeral and burial expenses may also be included in the premiums, depending on the contract undertaken. Predominantly in Australia however, a lump-sum amount is paid to the beneficiary on the death of the policy holder.

Life Insurance falls into two major classifications:

  • Protection policies - intended to grant a benefit (lump sum payment) when a specified event will happen. The most common form of this classification is the Term Insurance.

  • Investment policies - is a scheme where the chief goal is to aid the growth of capital by regular premiums. Most common types include Universal Life, Variable Life and Whole Life policies.

Why obtain a life insurance?

You may ask yourself why you would pay for a life insurance. Is this really necessary to undertake considering that you are paying for almost everything that you get in today's financially driven world. The foremost consideration in obtaining a life insurance is actually the acquisition of "peace of mind". If it is your Life Insurance, knowing that if in case something happens to you, your family would not be left with so much burden of having to live without you and shoulder the expenses of your funeral and burial.

Death is a fact of life and no one is exempted to it. The only thing that is not sure about death is when it will happen. Thus, ensuring that if that time will come you will not be leaving a grief stricken family who has to face financial difficulties as well because of your demise.

Anybody who can afford to pay the premiums can get a Life Insurance. The policy holder and the insured person are actually different entities although they are often one and the same most of the time. Life Insurance contract stipulates the conditions as well as limitations on the specified event. This kind of insurance usually covers the payment of a specific lump-sum amount to the designated beneficiary upon the death or critical illness of the insured person. However, to limit the liability of the insurer since death can come in various ways and means, there are some exclusions that are expressly stated in the contract which include claims resulting from the following cause of deaths;

  • Suicide

  • War

  • Fraud

  • Riot

  • Civil commotion

Thus when the insured person dies from suicide, the beneficiary will not receive anything from the insurance.

How much does it cost?

The cost of Life Insurance is established by using the mortality tables as prepared by actuaries who are professionals utilizing actuarial science. These mortality tables shows the expected annual mortality rates as based on probability and statistics employed by actuaries. You will find three key variables in a mortality table which are gender, age and tobacco usage. The table provides the baseline for the determination of the cost of insurance. In reality however, this table are utilized in combination with the data on the family and health history of the insurance policy applicant to ascertain the amount of the premiums as well as the insurability.

One such example of a Life Insurance is the Term Insurance which gives insurance coverage for a particular time. Otherwise known as pure insurance, the premiums you pay will only buy the policy holder protection in case of death, no more or less. The policy does not accrue cash value too. The three features of a Term Insurance include the face amount, the premiums to be paid and the length of coverage. There are many modifications and combinations of these three features in the various Term Insurance as sold by different insurance companies.

No matter what type of policy you will be applying for, the most important thing to remember is to read the fine prints in the contract, especially the Terms and conditions. Words can have a different meaning as used in connotation with an insurance contract, thus you should be extra careful in reading these prints. If you are in doubt, obtain the help of your insurer or get a local insurance advisor to help you out with your dilemma. It is better to be vigilant and careful than to be sorry.


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