Life Insurance: Basic Principles, History, Importance, Types
Under a Life Insurance contract, the insurer promises to pay a sum of money to the nominee of the policy holder on the death of the insured person. Other events such as terminal illness or critical illness are also paid for depending on the insurance contract. The policyholder pays the premium either regularly or in lump sum. Insurance benefits may also cover other expenses such as funeral expenses.
Life insurance policies are legal contracts. The terms of each contract describe the limits of the insured events. Specific exclusions written into the contract limit the insurer’s liability; Common examples include claims related to suicide, fraud, war, riot and civil commotion. Troubles may arise if an event is not clearly defined in the contract, for example the insured risked injury or death by knowingly consenting to an experimental medical procedure or taking a medication.
Modern life insurance bears some resemblance to the asset-management industry and life insurers have diversified their life insurance product offerings into retirement products such as annuities.
Life-based Insurance contracts fall into two major categories:
- Protection policies: These are designed to provide benefits in the event of a specific event, typically in a lump sum payment. More common over the years is term insurance – a protection-policy design.
- Investment Policies: The main objective of these policies is to facilitate capital growth through regular or single premium. Common forms (in the United States) are whole life, universal life, and variable life policies.
Basic Principles of Life Insurance Contract
- Insurable interest
- Absolute good faith
- A contract of life insurance is not a contract of indemnity. Compensation for loss of life is not possible.
History of Life Insurance
Life insurance began with marine insurance. Earlier, insurance was declared illegal in case of suicide, second war or sea voyage. The idea of this insurance came to protect the valuable lives of captains of players going for business. Then after the establishment of the artists’ unions, the priority and importance and grace of the life insurance contract.
Life insurance is different from other types of insurance only because it deals with human life. Therefore, the basic condition of the life insurance contract is that if the insured dies while the contract is in force, the insurer will pay the amount written on the insurance policy. Mainly in two situations, this contract can be terminated only due to the death of the insured person. First, if the insured has died due to some illegal act. Second, if the insured person has died due to the reasons mentioned in the insurance policy.
The transfer of this insurance amount is done by ‘assignment’. In this assignment, the insured person transfers his rights and interests arising from the insurance contract to the nominated person. This nomination only means that if the nominee is alive at the death of the insured, the insurance amount will be available to him. This nomination is subject to change without notice. If in any situation the nominee dies first, then only the insured gets the right to receive the amount.
Importance of life insurance
- Protection from untimely death
- Saving money for old age
- To promote savings
- Start investing
- Can get loan against the security of life insurance contract
- For social security
- Risk transfer
Types of Life Insurance
- Term insurance policy
- Whole life insurance policy
- Term insurance plan
- Moneyback Insurance Policy
- Endowment policy
- Savings and Investment Plans
- Whole Life Insurance
- Child Insurance Policy
- Retirement plan
World’s 10 largest life insurance companies
- Ping An Insurance (China)
- Allianz (Germany)
- Axa (France)
- Prudential Financial (US)
- Berkshire Hathaway (US)
- China Life Insurance (China)
- MetLife (US)
- Munich Re (Germany)
- Dai-ichi Life (Japan)
- Swiss Re (Switzerland)