A contract between two parties, the policyholder and the insurer, life insurance is where the insurer agrees to pay a designated beneficiary amount of money upon the death or other event. This includes terminal illness or critical illness. In exchange for this service the policyholder must agree to pay a designated amount called a premium on regular intervals or in several lump sums.
Like most insurance policies, life insurance is a contract whereby benefits are paid to the designated beneficiaries if an “insured event” occurs which is outlined as well as covered in the policy.
In order to be considered a life insurance policy the insured event MUST be based upon the lives of the people named within the details of said policy.
There are two basic types of life insurance, also known as life insurance classes.
Temporary life insurance & permanent life insurance or following subclasses: Term Life Insurance, Universal Life Insurance, Whole Life Insurance, and Endowment Life Insurance.
Term Life Insurance
Provides for life insurance coverage for a predetermined term of years for a specified premium. With Term Life Insurance the policy does not accumulate cash value. Term is generally considered “pure” insurance, where the premium buys protection in the event of death and nothing else.
Permanent Life Insurance
Permanent Life Insurance is a class of life insurance that will remain in-line until the policy matures (pays out), unless the owner fails to pay the premium when it’s due (meaning that the policy has expired or lapsed). This type of policy cannot be canceled by an insurer for any reason minus fraud on the application during the policy inception.
Permanent life insurance also builds a cash value over time that reduces the risk amount to the insurance company thus the insurance expenses. This means that a million dollar policy (at face value) can be relatively expensive for a 70 year old. With a permanent life insurance policy the owner can access the money in the cash value by withdrawing the money, borrowing the cash value off of the policy, or simply surrendering the policy thereby receiving the surrender value.
There are four basic types of permanent insurance: Universal life, whole life, limited pay, and endowment.