Life insuarnce (or life assurance, especially in the Commonwealth of Nations) is a contract between an insurance policyholder and an insurer or assurer, where the insurer promises to pay a designated beneficiary a sum of money upon the death of an insured person (often the policyholder). Depending on the contract, other events such as terminal illness or critical illness can also trigger payment. The policyholder typically pays a premium, either regularly or as one lump sum. Other expenses, such as funeral expenses, can also be included in the benefits.
Life policies are legal contracts, and the terms of the contract describe the limitations of the insured events. Specific exclusions are often written into the contract to limit the liability of the insurer; common examples are claims relating to suicide, fraud, war, riot, and civil commotion. Difficulties may arise where an event is not clearly defined, for example: the insured knowingly incurred a risk by consenting to an experimental medical procedure or medication resulting in injury or death.
Modern life insurance bears some similarity to the asset management industry and life insurers have diversified their products into retirement products such as annuities.
Life-based contracts tend to fall into two major categories:
Life policies are legal contracts, and the terms of the contract describe the limitations of the insured events. Specific exclusions are often written into the contract to limit the liability of the insurer; common examples are claims relating to suicide, fraud, war, riot, and civil commotion. Difficulties may arise where an event is not clearly defined, for example: the insured knowingly incurred a risk by consenting to an experimental medical procedure or medication resulting in injury or death.
Modern life insurance bears some similarity to the asset management industry and life insurers have diversified their products into retirement products such as annuities.
Life-based contracts tend to fall into two major categories:
- Protection policies: designed to provide a benefit, typically a lump sum payment, in the event of a specified occurrence. A common form—more common in years past—of a protection policy design is term insurance.
- Investment policies: the main objective of these policies is to facilitate the growth of capital by regular or single premiums. Common forms (in the U.S.) are whole life, universal life, and variable life policies.
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