A life insurance policy is a contract where a life insurance company insures or in other words agrees to pay a death benefit upon the death of a specified person. A basic contract for a life insurance policy is composed of four parts.
- The policy owner (the person paying for the policy)
- The life insurance company (agrees to pay the death benefit)
- The person being insured (this can be the same person as the owner)
- The beneficiary (a person, business, or trust that receives the money if the of insurance company pays on the policy)
The advantage of having a life insurance policy is that the policy owner has “peace of mind” in knowing that the death of the insured person will not result in financial hardship for family members or perhaps for a business. Life insurance policies are legal contracts and as with most contracts there are terms describing the limitations of the insurance policy. Usually these are specific exclusions written into the contract to limit the liability of the insurance company. Common examples of exclusion are claims relating to suicide, fraud, war, riot and civil commotion.
Life insurance is commonly used to protect the finances of an insured’s family, but a wage-earner or home-maker’s death can have a negative effect in a wide range of areas. Here is a sample of other ways life insurance is used to provide “peace of mind”.
- mortgage protection
- estate protection
- hire childcare
- business protection
- put a child through college
- support an elderly parent
- fund a retirement