Life insurance is a contract between an individual (the policyholder) and an insurance company. It provides financial protection to the policyholder's beneficiaries in the event of the policyholder's death.
Bellow are overview of life insurance;
APPLICATION
Application: The first step in obtaining life insurance is to fill out an application. The application collects personal information about the applicant, including their age, health history, occupation, and lifestyle habits. This information helps the insurance company assess the risk associated with insuring the individual.
THE ACTUARY
An actuary is a professional who specializes in assessing and managing financial risks. Actuaries use mathematical and statistical models to analyze and predict the potential financial impact of uncertain events, such as accidents, natural disasters, illness, or death. They are primarily employed in the insurance industry, but their expertise is also utilized in other sectors, such as finance, investment, healthcare, and retirement planning.
The main role of an actuary is to evaluate and determine the probability of future events and their potential financial consequences. They collect and analyze data, develop mathematical models, and use statistical techniques to assess risks and uncertainties.
Based on their analysis, actuaries help organizations develop strategies to minimize risks and make informed decisions. Actuaries play a crucial role in the insurance industry, where they are involved in setting insurance premiums, determining policy terms and conditions, and estimating the reserves required to cover future claims.
They also contribute to designing and evaluating pension plans, analyzing investment strategies, and ensuring regulatory compliance in the financial sector. Becoming an actuary typically requires a strong background in mathematics, statistics, and economics. Actuarial professionals often pursue a series of rigorous examinations and professional certifications to demonstrate their proficiency in the field.
These certifications are typically offered by actuarial organizations, such as the Society of Actuaries (SOA) or the Casualty Actuarial Society (CAS). Overall, actuaries are highly skilled professionals who combine their expertise in mathematics, statistics, and finance to help individuals and organizations manage and mitigate financial risks in an ever-changing and uncertain world.
BENEFICIARY
An insurance beneficiary is an individual or entity designated by the policyholder to receive the benefits of an insurance policy in the event of the policyholder's death or other specified event. The beneficiary is named by the policyholder and can be a person, such as a family member or a friend, or an organization, such as a charity or a trust.
The insurance policy specifies the conditions under which the benefits will be paid out to the designated beneficiary. In life insurance, for example, the beneficiary typically receives a lump sum payment upon the death of the insured person. The policyholder can choose one or multiple beneficiaries and specify the percentage of the benefits each beneficiary will receive.
It's important to regularly review and update the beneficiary designation to ensure it aligns with the policyholder's current wishes. If no beneficiary is named or if the named beneficiary predeceases the policyholder, the benefits may be paid to the policyholder's estate or to the next of kin according to the laws of the jurisdiction.
It's worth noting that the concept of beneficiaries is not limited to life insurance policies. Other types of insurance, such as retirement plans, annuities, and even certain types of property and casualty insurance, can also have designated beneficiaries who are entitled to receive the benefits under specific circumstances.
CASH VALUE
Insurance cash value refers to the accumulated savings or investment component of certain types of insurance policies, such as whole life insurance or universal life insurance.
These policies are often referred to as cash value life insurance policies. When you purchase a cash value life insurance policy, a portion of your premium payments goes toward the cost of insurance coverage, and the remaining portion is set aside as cash value.
Over time, the cash value grows based on various factors, such as the policy's interest rate, investment performance, and any additional contributions you make. The cash value serves as a living benefit of the policy, providing you with the opportunity to access funds during your lifetime.
You can typically access the cash value through policy loans or partial withdrawals. However, it's important to note that any outstanding loans or withdrawals may reduce the death benefit or cause the policy to lapse if not repaid.
The cash value in an insurance policy can offer several advantages. It can be used for various purposes, such as supplementing retirement income, paying for education expenses, or covering unexpected financial needs. Additionally, the cash value can potentially grow on a tax-deferred basis, meaning you won't owe taxes on the growth until you withdraw the funds.
It's crucial to review the terms and conditions of your specific insurance policy to understand how the cash value works, including any fees, surrender charges, or limitations associated with accessing the funds. Consulting with a qualified insurance professional can provide further guidance on your policy's cash value and how it fits into your overall financial plan.
FUNERAL EXPENSES
Life insurance proceeds can be used to cover funeral and burial expenses. This can help alleviate the financial burden on the insured's loved ones during an already difficult time.
DEATH BENEFITS
The insurance death benefit refers to the amount of money that is paid out by an insurance company to the designated beneficiaries upon the death of the insured individual. It is a key component of life insurance policies and certain types of annuities.
When an individual purchases a life insurance policy, they pay regular premiums to the insurance company. In the event of the insured person's death, the insurance company will provide a lump sum payment, known as the death benefit, to the beneficiaries named in the policy. The death benefit is intended to provide financial protection and support to the insured person's loved ones after their passing.
The amount of the death benefit is determined by various factors, including the type of life insurance policy, the coverage amount chosen by the policyholder, and the individual's age, health, and other risk factors. The death benefit is typically tax-free for the beneficiaries and can be used for various purposes, such as covering funeral expenses, paying off debts, replacing lost income, or funding future financial needs.
It's important to note that death benefits may also be included in other types of insurance policies, such as accidental death and dismemberment insurance (AD&D) or certain types of health insurance policies. In these cases, the death benefit is usually triggered by specific circumstances, such as accidental death or the diagnosis of a terminal illness.
Overall, the insurance death benefit serves as a financial safety net for beneficiaries, helping them cope with the financial implications that arise from the loss of a loved one.
COVERAGE
Coverage: Coverage refers to the amount of protection provided by a life insurance policy. It represents the face value or death benefit that will be paid out to the beneficiary upon the insured's death. The coverage amount is chosen by the policyholder based on their financial needs and goals.
EXCLUSIONS
Life insurance exclusions are specific circumstances or events outlined in the insurance policy that limit or exclude coverage for certain risks or causes of death. These exclusions vary among different life insurance policies and insurance providers, but here are some common examples:
Suicide: Most life insurance policies have a suicide exclusion clause, typically within the first two years of the policy. If the insured person dies by suicide within this period, the policy may not pay out the death benefit. After the exclusion period, suicide is usually covered.
Misrepresentation or Fraud: If the insured person provided false information or misrepresented important details on the insurance application, such as age, medical history, or lifestyle habits, the insurer may deny the claim or cancel the policy.
Dangerous Activities: Engaging in high-risk activities or occupations, such as extreme sports, aviation, deep-sea diving, or hazardous occupations like explosives handling, may lead to exclusions or limitations in coverage. If the insured person dies as a result of participating in these activities, the policy may not provide benefits.
War or Terrorism: Some life insurance policies may exclude coverage for death caused by acts of war, terrorism, or civil unrest. This exclusion is typically relevant in areas with ongoing conflicts or high-risk situations.
FACE VALUE
The face value of a life insurance policy, also known as the death benefit, is the amount of money that is paid out to the beneficiary upon the death of the insured individual. It is the predetermined sum of money that the policyholder chooses when they purchase the life insurance policy.
When a policyholder passes away, the insurance company will typically pay the face value of the policy to the designated beneficiary, as long as the policy is active and all the necessary documentation and requirements are met. The beneficiary can use the death benefit to cover various expenses, such as funeral costs, outstanding debts, mortgage payments, or to provide financial support to their dependents.
It's important to note that the face value of a life insurance policy is separate from the premium, which is the amount the policyholder pays regularly to keep the policy active. The premium is determined based on factors such as the policyholder's age, health, lifestyle, and the coverage amount chosen.
The face value of a life insurance policy can vary widely depending on the individual's needs and financial circumstances. Some people opt for smaller face values to cover immediate expenses, while others choose larger face values to provide long-term financial security for their loved ones.
GRACE PERIOD
Grace PeriodThe grace period in life insurance refers to a specified period of time after a premium payment is due, during which the policyholder can make the payment without the risk of the policy lapsing or being terminated. It is a provision included in many life insurance policies to provide some flexibility to policyholders who may have difficulty making premium payments on time.
The length of the grace period can vary depending on the insurance company and the terms of the policy. Commonly, the grace period for life insurance policies is 30 days, but it can be shorter or longer. During this period, the policy remains in force, and the policyholder continues to have coverage even if the premium payment is overdue.
If the policyholder fails to make the premium payment within the grace period, the policy may lapse, which means it becomes inactive, and the insurance coverage ceases. In some cases, the policyholder may be given an option to reinstate the policy by paying the overdue premium and any applicable penalties or interest.
It's important to note that the specific details regarding the grace period, including its duration and any reinstatement provisions, will be outlined in the insurance policy contract. Therefore, it's essential for policyholders to review their policy documents carefully and consult with their insurance provider or agent to fully understand the grace period and any associated conditions.
HEALTH EXAMINATION
life insurance health examination, also known as a life insurance medical exam or a paramedical exam, is a standard requirement for many life insurance applications. It is a comprehensive medical assessment conducted by a healthcare professional to evaluate an individual's health status and determine their insurability. The purpose of the examination is to assess the applicant's overall health, identify any pre-existing conditions, and estimate the risk of mortality associated with insuring that individual.
During a life insurance health examination, the applicant typically undergoes the following:
Medical history review: The healthcare professional will ask questions about the applicant's medical history, including previous illnesses, surgeries, medications, and family medical history.
Physical examination: A physical examination may involve measuring height, weight, blood pressure, pulse rate, and other vital signs. The examiner may also listen to the heart and lungs, examine the abdomen, and check for any physical abnormalities.
Blood and urine tests: Blood and urine samples are often collected to assess various health indicators such as cholesterol levels, liver function, kidney function, glucose levels, and the presence of any infectious diseases or illegal substances.
Additional tests: Depending on the insurer's requirements and the applicant's age or medical history, additional tests such as an electrocardiogram (ECG/EKG), stress test, chest X-ray, or other diagnostic procedures may be requested.
The results of the life insurance health examination help the insurance company assess the applicant's risk profile and determine the premium rates for the policy. Generally, the healthier the individual, the lower the risk, and the more favorable the premium rates are likely to be. However, the specific impact on the premium will also depend on other factors like age, coverage amount, and the type of life insurance policy being applied for.
It's important to note that not all life insurance policies require a health examination. Some insurance companies offer "no medical exam" or "simplified issue" policies, which may have a shorter application process and eliminate the need for a comprehensive medical evaluation. However, these policies often have higher premiums or lower coverage amounts compared to policies that require a health examination.
INCONTESTABILITY CLAUSE
The Incontestability Clause is a provision found in many life insurance policies. It is designed to protect the policyholder by limiting the time period during which the insurance company can contest or deny a claim based on misrepresentation or concealment of information by the insured.
Typically, the Incontestability Clause states that after a certain period of time, usually two years from the date the policy becomes effective, the insurance company cannot contest the policy or deny a claim based on statements made in the application. This clause provides the policyholder with a level of certainty and protection, ensuring that the insurance company cannot retroactively void the policy or deny a claim due to innocent or unintentional mistakes made on the application.
During the contestability period, which is usually the first two years of the policy, the insurance company has the right to investigate any material misrepresentations or omissions made by the insured on the application. If it discovers that the insured provided false or misleading information that would have affected the insurer's decision to issue the policy or set the premium rates, the company may have grounds to contest the policy or deny a claim.
However, once the contestability period has passed, the insurance company's ability to challenge the policy becomes impossible.
JOINT LIFE INSURANCE
Joint life insurance is a type of life insurance policy that covers two individuals, usually a married couple, under a single policy. It is designed to provide a death benefit upon the death of either one of the insured individuals. This means that when one of the insured individuals passes away, the policy pays out the death benefit to the surviving spouse or the designated beneficiaries.
There are two main types of joint life insurance policies:
First-to-Die Policy: With this type of policy, the death benefit is paid out upon the death of the first insured individual. Once the death benefit is paid, the policy terminates, and the coverage ends for both individuals. This type of policy is often used to provide financial protection for couples who rely on each other's income or have joint financial obligations such as a mortgage.
Second-to-Die Policy: Also known as survivorship life insurance, this policy pays out the death benefit upon the death of the second insured individual. The policy remains in force as long as one insured person is alive. Second-to-die policies are commonly used for estate planning purposes, particularly to cover potential estate taxes or provide an inheritance for beneficiaries after both insured individuals have passed away.
Joint life insurance can provide a cost-effective way for couples to obtain life insurance coverage compared to purchasing separate policies. However, it's important to note that joint life insurance typically pays out only once, and the coverage ends when one of the insured individuals dies. Therefore, if both individuals require individual coverage, it may be more appropriate to consider separate life insurance policies to meet their specific needs.
KEY PERSON INSURANCE
Key person insurance, also known as key employee insurance or key man insurance, is a type of life insurance policy taken out by a business on the life of a key employee or key person within the organization. This insurance policy is designed to provide financial protection to the business in the event of the death or disability of that key individual.
Key persons are typically individuals who play a crucial role in the success and profitability of a company. They may possess unique skills, knowledge, experience, or have important relationships with clients, suppliers, or investors. Their unexpected absence from the company due to death or disability can have a significant impact on the business's operations, finances, and future prospects.
Key person insurance works by compensating the business for the financial losses it may suffer as a result of the key person's absence. The policy is owned and paid for by the business, while the company is also named as the beneficiary. In the event of the key person's death or disability, the insurance proceeds are paid to the company, which can be used to cover various expenses such as:
Recruiting and training a replacement for the key person.
Covering lost profits or revenue during the transition period.
Repaying debts or loans that the key person guaranteed.
Maintaining business operations and continuity.
Assuring stakeholders, such as creditors or investors, that the business can continue without significant disruptions.
The coverage amount for key person insurance is typically based on the financial impact the loss of the key person would have on the business. Factors such as the individual's role, responsibilities, contribution to revenue, and future earnings potential are considered when determining the appropriate coverage amount.
It's important to note that key person insurance is different from regular life insurance policies. While traditional life insurance primarily provides financial protection to the insured person's family, key person insurance focuses on protecting the business from potential financial hardships arising from the loss of a key employee.
Consulting an insurance professional or financial advisor is recommended to understand the specific details, options, and requirements related to key person insurance based on your business's needs and local regulations.
LAPSE
Life insurance lapse refers to the termination or cancellation of a life insurance policy due to non-payment of premiums by the policyholder. When you purchase a life insurance policy, you are required to make regular premium payments to keep the policy in force. If you fail to pay the premiums within the grace period specified in the policy (typically 30 to 60 days), the insurance company may consider the policy lapsed.
When a life insurance policy lapses, the coverage provided by the policy ends, and the policyholder no longer has the benefits or protections offered by the insurance policy. This means that if the insured person were to pass away after the policy lapses, the beneficiaries would not receive a death benefit payout.
In some cases, policyholders may have the option to reinstate a lapsed policy by paying any outstanding premiums and meeting certain conditions set by the insurance company. However, reinstatement is not guaranteed, and there may be limitations or additional requirements to reinstate a policy.
MATURITY
Life insurance maturity refers to the point in time when a life insurance policy reaches its full term or duration. It is the date on which the policyholder is entitled to receive the maturity benefit or the total amount of money stipulated in the policy.
Life insurance policies typically have a fixed term, such as 10, 20, or 30 years, during which the policy remains in force. If the policyholder passes away during this term, the death benefit is paid out to the designated beneficiaries. However, if the policyholder survives the entire term, the policy reaches maturity, and the insurance company pays the maturity benefit to the policyholder.
The maturity benefit usually includes the sum assured, which is the guaranteed amount specified in the policy, along with any bonuses or accumulated cash value, depending on the type of life insurance policy. This payout serves as a financial benefit to the policyholder, providing a lump sum amount that can be used for various purposes, such as retirement planning, paying off debts, funding education, or any other financial needs.
It's important to note that the maturity date and benefits vary depending on the type of life insurance policy. For example, term life insurance policies typically do not have a maturity benefit as they provide coverage only for a specified term. On the other hand, permanent life insurance policies, such as whole life or universal life, usually offer maturity benefits because they provide coverage for the policyholder's entire life.
NOMINATIONS
Life insurance nomination refers to the process of designating a beneficiary or beneficiaries who will receive the benefits of a life insurance policy upon the policyholder's death. When you purchase a life insurance policy, you have the option to nominate one or more individuals or entities as beneficiaries.
By making a nomination, you ensure that the proceeds from your life insurance policy are distributed according to your wishes. The nominated beneficiaries will be entitled to receive the death benefit in the event of your demise. This can provide financial support to your loved ones or any other person or organization you choose to name as a beneficiary.
There are different types of nominations that can be made:
Revocable nomination: This allows you to change or revoke the nomination at any time during the policy term. You can add, remove, or modify the beneficiaries according to your changing circumstances or preferences.
Irrevocable nomination: Once you make an irrevocable nomination, you cannot alter or revoke it without the consent of the nominated beneficiaries. This provides greater certainty that the nominated individuals will receive the proceeds.
Contingent nomination: In a contingent nomination, you can specify alternate beneficiaries who will receive the benefits if the primary beneficiary predeceases you or is unable to receive the proceeds.
It is important to regularly review and update your life insurance nomination to ensure it reflects your current wishes and circumstances. Life events such as marriage, divorce, birth of a child, or changes in relationships may necessitate updating your nomination.
Consulting with an insurance professional or financial advisor can help you understand the specific nomination options available and make informed decisions based on your needs and goals.
OVER-INSURANCE
Life insurance over-insurance refers to a situation where an individual is insured for an amount that exceeds their actual financial needs. In other words, it occurs when someone purchases a life insurance policy with a death benefit that is significantly higher than what their dependents would require to maintain their standard of living in the event of their death.
Over-insurance can arise due to various reasons, such as miscalculating the appropriate coverage amount, inadequate understanding of one's financial situation, or being sold a policy with excessive coverage by an insurance agent. Some individuals may also deliberately choose to over-insure themselves to provide an extra financial cushion for their loved ones or to compensate for potential future expenses.
While having more coverage than necessary may initially seem like a prudent approach, over-insurance can have certain drawbacks. The primary concern is the cost associated with maintaining higher coverage levels. Premiums for life insurance policies are based on the coverage amount, so over-insuring can result in significantly higher premiums. This can strain an individual's finances, especially if the premiums become unaffordable over time.
Another drawback of over-insurance is that it may lead to an inefficient allocation of financial resources. Money spent on excessive insurance premiums could have been utilized for other purposes, such as saving for retirement, paying off debt, or investing in assets that generate income or appreciation.
It's important to regularly reassess your life insurance needs to ensure that you have the appropriate amount of coverage based on your current financial situation, responsibilities, and goals. Consulting with a financial advisor or an insurance professional can help you determine the right coverage amount that adequately protects your loved ones without unnecessarily burdening your finances.
INSURANCE PREMIUM
Life insurance premium refers to the regular payment made by an individual or policyholder to an insuran how company in exchange for the coverage provided by a life insurance policy. Life insurance is designed to provide financial protection to the beneficiaries named in the policy in the event of the policyholder's death.
The premium amount is determined by several factors, including the following:
Policyholder's age: Generally, the younger you are when you purchase a life insurance policy, the lower your premium is likely to be.
Health and medical history: Insurance companies assess the policyholder's health condition and may require medical examinations or access to medical records. Factors such as pre-existing medical conditions, lifestyle choices (e.g., smoking), and family medical history can affect the premium.
Coverage amount: The higher the coverage amount or death benefit, the higher the premium is likely to be.
Policy type: Different types of life insurance policies have varying premium structures. For example, term life insurance offers coverage for a specified period (e.g., 10, 20, or 30 years) and tends to have lower premiums compared to permanent life insurance policies, such as whole life or universal life insurance.
Additional riders: Insurance companies may offer additional riders or options that provide additional coverage, such as disability or critical illness riders. Opting for these riders will increase the premium.
Gender: Historically, women have had lower life insurance premiums compared to men due to statistical differences in life expectancy. However, this may vary depending on the insurance company and the policy.
It's important to note that life insurance premiums can be paid on a monthly, quarterly, semi-annual, or annual basis, depending on the policy and the preferences of the policyholder. Additionally, premiums may be subject to periodic reviews or adjustments by the insurance company.
It's recommended to contact insurance providers directly or consult with a licensed insurance agent or financial advisor to obtain accurate and up-to-date information regarding life insurance premiums specific to your situation.
QUIT CLAIM
Q - Quit Claim: A quit claim is a release or transfer of an individual's interest or right to a life insurance policy. It usually involves transferring ownership or beneficiary rights to another party.
INSURANCE RIDERS
Life insurance riders are additional provisions or features that can be added to a life insurance policy to enhance its coverage or provide additional benefits beyond the basic death benefit. These riders allow policyholders to customize their life insurance policies to better suit their specific needs. While riders vary by insurance company and policy type, here are some common types of life insurance riders:
Accidental Death Benefit Rider: This rider provides an additional death benefit if the insured's death occurs as a result of an accident. It pays out in addition to the base policy's death benefit.
Disability Income Rider: This rider provides a regular income to the insured if they become totally disabled and are unable to work. It typically pays a percentage of the policy's death benefit as a monthly income for a specified period.
Accelerated Death Benefit Rider: Also known as a living benefit rider, this rider allows the policyholder to receive a portion of the death benefit while still alive if they are diagnosed with a terminal illness or a critical illness specified in the policy. It can help cover medical expenses or provide financial support during a difficult time.
Waiver of Premium Rider: If the insured becomes totally disabled and unable to work, this rider waives the premium payments for the life insurance policy, ensuring that the coverage remains in force without the insured having to pay premiums during the disability period.
Guaranteed Insurability Rider: This rider allows the policyholder to purchase additional coverage at specific intervals (such as every three years) without undergoing additional medical underwriting. It is useful for individuals who anticipate needing more coverage in the future due to life events like marriage, having children, or a mortgage.
Term Conversion Rider: This rider allows the policyholder to convert a term life insurance policy into a permanent life insurance policy without undergoing medical underwriting. It provides flexibility if the insured's needs change over time.
These are just a few examples of life insurance riders. The availability and specifics of riders vary by insurance company and policy type, so it's essential to review the details of each rider and consider how they align with your specific needs and circumstances.