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Life Insurance

What is life insurance?

Life insurance refers to the type of insurance where a person is covered for loses incurred to the family members by his death. Generally life insurance is taken up by the person who is the earning member of the family. The person takes a life insurance as the other members of the family are dependent on him and hence the family members are affected in case the person dies. The insured person has to pay a premium for his life insurance. The risk assumed by the insurer is the risk of death of the insured.

Parties to a life insurance

There are generally three parties in a life insurance transaction. There is the insurer, the insured and the owner or the policy holder. In most cases the insured and the policy owner are one and the same person. Let us take an example. If Mr. Peter takes a policy in his name, then he is the owner of the policy and also the insured. But in case Mr. Peterís wife takes a loan in Mr. Peterís name, then Peterís wife is the owner of the policy and Mr. Peter is the insured.

The beneficiary or beneficiaries are the people who will receive the proceeds from the policy in case of the death of the insured. The beneficiary is designated by the owner of the policy at the time of signing the policy agreement. The owner can change the names of the beneficiaries during the agreement, but he cannot do so in case the policy has irrevocable beneficiary designation.

Terms and conditions of the policy

The life insurance policy is a legal contract between the insurer and the insured where all the terms and conditions of policy are mentioned in the agreement. In most cases the policy becomes null in case the insured commits suicide. The insured should have died a natural death or should have died from any kind of accident for his dependents to claim the policy amount. Also it is necessary that the policy holder divulges accurate information in the agreement. Any misrepresentation in the agreement by the owner will nullify the policy. Most of the policies have a contestability period. This is normally a two year period and in case the insured dies within this period then the insurer has every right to access additional important information before it denies or pays the claims.

Purpose of buying the policy

The purpose of buying the life insurance policy is to compensate the family members of the deceased. The policy is said to mature when the insured passes away or the insured attains a particular age. The insurance proceeds from the policy are used to pay the funeral expenses of the deceased and also to replace the deceasedís wages. Life insurance policy is also taken as a retirement plan wherein the insured gets a fixed amount every month after he retires. The owner of the policy must have a legitimate interest for insuring the other personís life. .



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