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What is Life Insurance?

Life insurance serves to provide financial support for one’s beneficiaries in the event of that person’s passing. A life insurance keeps the dependents of the insured person secured, providing cash support in the form of lump sum or regular income paid monthly.

Important Terminologies

Insured- this is the person whose life is insured and the benefits will be paid out in the event of this person’s death. Usually, this person is also the owner, but not necessarily.

Owner- also known as the policy holder, this person is the one who has control over the policy and the one paying for the premiums.

Beneficiary- this can be one or more persons who will receive the benefits if the insured dies.

Insurance provider- this is the company which provides the coverage and who will be paying for the benefits stated in the policy.

Underwriter- this person determines the eligibility of the insured before signing up for the policy by performing medical exams, interviews, and assessments.

Premiums- these are the payments made by the owner to the insurance company in order for the contract to take effect.

Types

Term life insurance- with a term life insurance policy, the beneficiaries will only receive the death benefits if the insured dies within a predetermined time frame, such as 10, 20, or 30 years. With term life, the policy will cease if the insured lives beyond the contract term, unless he renewed the policy before expiration or converted the policy into a permanent life, wherein he might have to pay for more.

Permanent life insurance- this type of life insurance policy covers the insured person’s life permanently, so that the beneficiaries are assured to receive the death benefits if the insured dies, whenever that happens. Also known as cash-value life insurance, permanent life offers a cash-value feature, a sort of savings which can be borrowed, withdrawn, invested, or loaned against, making permanent life more expensive than term life insurance.

Exclusions

Benefits from a life insurance aren’t automatically awarded once the insured dies. A certain period known as contestability period exists in order to review the actual cause of death or find any misrepresentation during the underwriting process, in which case the insurance provider has the right not to pay out the benefits if any information is found to be incorrect or the cause of death is controversial.

Insurance companies also exclude payments in cases of suicide and self-inflicted injuries. This is to avoid people applying for insurance and then hurting themselves in order for their families to receive payment. Furthermore, there are exclusions if the insured was killed during acts of war, riots, invasions, or while being active in the military service.

Most insurance companies will also refuse to accept pregnant women in their policies, until after they’ve delivered, due to the health risks associated with pregnancy and delivery. Furthermore, if you are known to have existing medical conditions, or are participating in dangerous activities, you might encounter some difficulty applying for a policy. Should you want these limitations lifted, you might pay a higher price for your premiums, so better check which kinds of jobs and hobbies are restricted.

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