How it works
There are four parts to a life insurance contract: the life insurance company, the policy owner, the individual(s) being insured (often the same as the owner), and the beneficiary – often a family member, business or business partner, or other legal entity like a trust.
The life insurance company agrees to ‘insure’ or pay a death benefit to the policy’s beneficiary assuming the policy is ‘in force’ or active at the time of the insured’s death. The policy owner is responsible for paying premiums in order to maintain the policy in force.
The purposes of life insurance
The most common purpose of life insurance is to protect the finances of one’s family or friends in case of a wage-earner’s death, but that’s not its only use. Life insurance can be used:
- To hire childcare to replace a home-maker’s contribution
- For estate protection
- For mortgage protection
- To fund a retirement
- To protect a business against the loss of a key employee
- As an employment benefit
Click here to return to the main life insurance page.
