Life Insurance Is A Contract Between The Insurance Company And The Planholder
Post date: April 7th, 2009 |
Find the cheapest auto insurance providers online Enter your ZIP Code to start comparing instant quotes. |
A life insurance plan is a contract entered into between the insured who is also called policyholder and an insurance company. The contract is in essence an undertaking by the insurer to pay out the sum assured if an event like death or a critical illness occurs.
To bring the contact into effect the planholder either pays a lump sum on commencement or agrees to pay a sum of money to the insurer reguarly for a specified period of time. In both cases the money paid is known as the premium for the plan. In some countries a life insurance plan also means including a provision for funeral expenses as well as the payout of the sum assured. However in countries such as the United States policy payouts are normally only for the sum assured on the death or serious illness of the insured.
The sum which is stated in the plan is usually paid to the beneficiaries of the insured on the death of the insured and therefore the policyholder enjoys the peace of mind of knowing that the nominated beneficiaries are going to be provided for after his or her death.
While at times the sum assured can be paid out in advance of death where the policyholder is diagnosed with a critical illness, to keep the liability of the insurer within workable limits, cases such as death or serious injury arising out of war, riot, some natural disasters and death from suicide are not insured.
Life insurance plans come in a variety of different forms and can provide not simply protection but also act as a form of investment. For instance, many term life insurance plans are intended purely to provide protection for a specified period of time and will pay out only if death or serious illness occurs during the defined term. If these events do not occur then the policy will simply lapse having no value at the end of the term.
By contrast, whole life insurance and universal life plans remain in force throughout the policyholder’s life and pay out on death or the diagnosis of critical illness. These plans do however also gain a cash value which is based upon the value of the underlying investment supporting the policy and the planholder can take some or all of this value from the plan in accordance with the terms and conditions of the contract. This type of plan is often used to provide a savings vehicle for things like the payment of school fees or to provide a lump sum for retirement.
Life insurance is also often used in business, particularly in partnerships, to safeguard the business against the death of an individual with a financial stake in the business. In this case it is normal for one individual to buy a plan and act as the planholder and beneficiary with another individual being named as the insured.
All life insurance plans are different and it is vital for you to know the difference between whole life insurance and term insurance before rushing out to get yourself a few free life insurance quotes