There are several things that you could or should know about life insurance. The topic of life insurance is so extensive, that there would be many things that you don’t know about life insurance; even if your knowledge is sufficient. Essentially, life insurance is a risk management product that seeks to protect the welfare of the family of a life insured individual. In exploring life insurance, it is important to get an idea of the key aspects associated with the concept.
Although there will always be a debate about the utility and value of life insurance, it serves many functions. The fundamental role of life insurance is covering final expenses and providing replacement income for financial dependents. However, life insurance has other uses that include, mortgage protection, forced savings, and medical benefits. One school of thought suggests that some life insurance plans could be considered complete financial programs. This view is a little exaggerated, but it underscores the utility of a life insurance plan.
No exploration of life insurance is complete without an examination of the types of life insurance plans available. Indeed, the range of life insurance products is comprehensive. Permanent life plans and temporary life insurance constitute the dichotomy. Permanent life plans can be further subdivided into whole life and universal life plans.
Temporary life insurance is manifested in the form of endowments, mortgage protection and term life plans. Term life plans are quite varied as well. They provide coverage for different periods and can be convertible or refundable term plans. Term insurance and mortgage protection plans are not cash-value bearing. Permanent life insurance plans typically have a savings/ investment fund attached or provide returns in the form of dividends.
Whole life plans and universal life plans are not homogenous either. There exist different plan structures under either heading. Some of these include dividend-paying whole life, non-dividend paying whole life and variable and fixed universal life plans. The universal life plans offer greater flexibility and optional supplementary benefits than whole life plans.
Life insurance is a contract between an insurer and the insured. This means that it is a legally binding agreement that is based on the principle of utmost good faith. A life insurance contract would also indicate what an insurer will and will not cover in the event of the death of an insured. It will also state what will happen to the policy in the event of lapsed premiums or withdrawals.
Basic knowledge of the underwriting process is also useful when exploring life insurance. Underwriting for life insurance is conducted as a risk-assessment method. The three areas that are typically assessed are medical risk, occupational risk and financial risk. Underwriting helps give the insurer criteria on which to assess the risk posed by an insured. The insurer would then accept, rate or decline the offer made by the proposed insured. The insurance application also becomes part of the insurance contract.
There can be an encyclopaedia of knowledge on life insurance and all things connected with it. Life insurance can even be offered as an employment benefit. It should be noted that exploring the concept of life insurance is not merely an academic exercise. Life insurance knowledge helps you to understand how to make the life insurance concept work for you or your financial dependents.