LIFE INSURANCE—MEANING, FEATURES AND TYPES

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Life insurance is a contract whereby the payment of money is assured upon the death or the occurrence of any contingency that is dependent on human life.

It can also be defined as an insurance contract where the subject matter of payment of premium is dependent on human life.

Life insurance is an insurance contract, whereby the insurer in consideration of a premium, agrees to pay a lump sum of money upon the death of the insured or the occurrence of certain events, such as critical illness or maturity of the policy.

Life insurance (or life assurance)  protects the dependents of the life insured in case anything unfortunate happens to him.

It is usually chosen based on the needs and demands of the insured.

Nature And Features Of Life Insurance

1. Life insurance covers death due to natural causes and accidents.

2. It is a contract of assurance, and not indemnity because life cannot be indemnified.

3. Because life insurance is not an indemnity contract, the principles of subrogation and contribution do not apply to life insurance.

4. The contractual event (cause) of life insurance is bound to happen. As such, the life insurance has to perform the contract, except in some rare cases.

5. It is a long term contract having all the essential characteristics of a valid contract

Types Of Life Insurance

Traditionally, Life insurance is of three types, namely: Term insurance, whole life insurance and endowment insurance.

1. Term insurance: This is the simplest and oldest form of life insurance.

Term insurance is life insurance that lasts for a set length of time.

In term insurance, the sum of money insured is payable to the beneficiaries upon the death of the life insured, provided death occurs within a specified time frame.

Should the life insured survive to the end of the term, no benefit is payable.

Indeed, Term life insurance is so named because its coverage is for a particular time frame which can range from one year to four years.

It's worth noting that term life insurance is also known as pure life insurance or temporary life insurance.

Term life insurance can be divided into three main types, viz: level term insurance, decreasing term insurance and increasing term insurance.

A. Level term insurance: This is the default term life insurance coverage by most insurance companies.

Under this, The set sum assured (or death benefits), as well as the premium, remain unchanged during the period of the policy.

B. Increasing term insurance: In this case, the selected sum assured increases throughout the term of the policy. The premium, on the other hand, may or may not rise.

C. Decreasing term insurance: Here, the selected sum assured reduces over the policy's term while the premium remains constant.

Term insurance can also be divided into renewable and convertible term insurance

A. Renewable life insurance: This type of term life insurance policy allows you to renew your coverage after the policy's term has expired.

B. Convertible life insurance: This is a life insurance in which the policyholder is entitled to exchange the term policy for endowment insurance or whole life insurance without having to undergo a new medical examination

2. Whole life insurance: This is a type of life insurance that promises to pay a sum of money if the life insured dies, regardless of when that death occurs.

In whole life insurance, when the insured dies, the face value of the policy (also known as the death benefit) is paid to the beneficiary(ies) listed in the insurance policy (ies)

One distinguishing feature of whole life insurance is that there is no fixed term for the cover of death. Whole life insurance is also called permanent life insurance.

The cost of whole life insurance is usually higher than that of term insurance.

The premium for whole life insurance can be paid throughout the life of the insured or for a specified period.

Accordingly,  there are two types of whole life insurance: straight whole life insurance and limited whole life insurance.

A. Straight Whole life insurance: This is whole life insurance where the premium is paid throughout the lifetime of the assured.

Because of this, straight whole life insurance is also called continuous premium whole life insurance or ordinary whole life insurance.

B. Limited pay whole life: This protects for the entire lifetime of the insured, but the premium payment is made only for a limited time.

3.  Endowment life insurance: This combines both the features of term insurance, pure endowment and a normal savings account.

A pure endowment is a contract that promises to pay the face amount of the policy only if the insured survives the endowment period. If the endowment period is 20 years, for example, the insured will be paid the face amount of the policy if he lives until the 21st year.

Endowment life insurance is a type of life insurance that promises to pay a lump sum after a set period (at maturity) or upon the policyholder's death.

An endowment life insurance usually has fixed maturities which may be ten years, fifteen years or even twenty years.

This kind of life insurance provides stable returns and grows in value over time.

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Endowment life insurance is appropriate for saving money for a set period and a specific purpose, such as a child's education or a retirement fund.

Before I conclude, please note that annuity is not a life insurance contract. Rather, it is a form of pension done in return for a certain money, which may be in the form of lump sum or regular payment.

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