Life insurance is an agreement or contract signed between two parties, the insured and the insuring company or insurer. The agreement is such that the insurer pays the preset sum assured to the beneficiary, in the event of the death of the insured. The face value of the policy is the amount payable within the terms of the agreement, at the time of death of the insured or on the date of maturity (not applicable to term plans). This agreement is backed by the premium paid in installments for a fixed tenure, by the policyholder. Moreover, the premium can also be paid in a lump sum.
Inclusions and Exclusions
In the case of a policyholder who has lost an insured spouse, one year’s wages of the deceased are paid, in addition to the claim. The covered events could also include critical illness, incapacitation, or accidental death. Some agreements also cover the assets, bills, death expenses, and the catering after the funeral. The policy usually includes specific exclusions in the fine print, to limit the liability of the insurance provider. These include claims related to suicide, fraud, death due to war or riots, or any kind of terrorism. The special provisions may include the ‘suicide clause’. However, this is usually not covered for the first two years of the policy.
These contracts are divided into two major categories:
- The protection plan is designed to provide benefit in the event of a predetermined and specific event. The premium payment towards such a policy is usually a lump sum amount.
- The investment plan is designed to facilitate the growth of capital along with assured benefits. The premiums are usually paid in installments.
There are other common forms of life insurance like the whole, universal, and the variable policies. These are all designed to meet the specific needs of an individual. There are a number of private and government-run agencies and companies that cover individuals and families, the world over.
The benefit is payable only after the death of the insured person. The policy proceeds are forwarded to the person designated as the ‘beneficiary’ by the insured. It is important to note that the beneficiary is not a party to the policy in any way. The owner has the right to change the nomination of the beneficiary initially added in the policy, unless the policy specifies otherwise.
In case, an ‘irrevocable beneficiary’ is named by the insured, this beneficiary has to agree before any changes are made to the policy and benefits, thereafter. In other words, the agreement cannot be changed without the permission of this beneficiary.
The insuring company calculates the policy amount based on the price to be able to fund the claim and the administrative costs involved, and make an overall profit. The cost of life insurance is ascertained with the help of a predetermined mortality table.