subject: Life Insurance Plans & Policies [print this page] Life Insurance Plans & Policies
A Life insurance plan is nothing but a bond between the owner of the policy and the insurance company, wherein the insurance company agrees to redeem a predetermined beneficiary an amount of money upon death of the policy owner or any such incidents such as critical or terminal illness. On the part of the policy owner he/she agrees to pay an amount (generally in regular installments or sometimes in lump sum).
Life insurance policies are legal bonds and the terms of this agreement will lay down the limitation on the event that is insured. Certain event or exceptionalities are included in the agreement so as to limit the liability on the part of the life insurance provider; for instance specific provisions are included in case of civil commotion, riot, war, fraud and suicide. These days' prospective life insurance policy buyers want terrorism to be included in the list of eventualities.
Life insurance plan generally fall in the below two categories.
Protection policies these life insurance policies are designed in a manner to provide a benefit to the insured in the likely event that has been specified explicitly. In this type of life insurance plan the payment is done in a lump sum manner. The most common of this plan is the term insurance.
Investment policies these types of insurance policies have their chief objective as to make their capital grow by way of multiple or lump sum premium.
The life insurance company generally calculates the prices of the policy with the novel commitment to fund the claims that may arise and also factor in administrative costs, and in the process make a reasonable profit for its shareholder. Also the cost of the insurance plan is determined by the mortality tables which are made by the actuaries. Actuaries are those people who make use of actuarial sciences, and are a branch of mathematics (primarily statistic and probability). Mortality tables show the expected mortality rates on an annual basis. With the help of such mortality table it is possible to estimate the life expectancy from the mortality assumption in the table.
The insurance provider receives payment in the form of premiums from various policy owners and then it invest the whole amount in to a collective fund called the "pool" from which all the claims that may arise are paid and all the necessary operational cost is paid for.
The rates which are charged as premium for life insurance policies increases with the age of the insured. As it is obvious that as a person gets older, his chances of death increase.
"Insurance" is many a times confused with the term" assurance". In layman's language, "insurance" is an instrument that provides cover for any probable event that might come to pass in the future. While the term "assurance", is an instrument that provides for cover for any event which is bound to happen. In most of the countries insurance and assurance are used independently except for the United States of America and a handful of countries.
All in all, life insurance policies have become an essential part of our life's and has taken an important place in the scheme of things.
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