Life Insurance

What is Life Insurance?

Life insurance or life assurance is a contract between the policy owner and the insurer, where the insurer agrees to pay a sum of money upon the occurrence of the insured individual's or individuals' death or other event, such as terminal illness or critical illness. In return, the policy owner agrees to pay a stipulated amount called a premium at regular intervals or in lump sums.

As with most insurance policies, life insurance is a contract between the insurer and the policy owner whereby a benefit is paid to the designated beneficiaries if an insured event occurs which is covered by the policy. To be a life policy the insured event must be based upon the lives of the people named in the policy.

Insured events that may be covered include:

Serious illness: 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; for example claims relating to suicide, fraud, war, riot and civil commotion.

Life-based contracts tend to fall into two major categories:

Protection policies - designed to provide a benefit in the event of specified event, typically a lump sum payment. A common form of this design is term insurance.
Investment policies - where the main objective is to facilitate the growth of capital by regular or single premiums. Common forms are whole life, universal life and variable life policies.

What is the difference between Mortgage/Creditor Insurance and Life Insurance?

Personal life insurance is considerably more likely to pay the benefit than mortgage life insurance due to exclusions and limitations in mortgage life products.

Before purchasing any life insurance it is critical to ask the question, "How much insurance am I going to need for how long ?" The answer to this question can be the guide to how life insurance is purchased with respect to premium guarantee periods.

The premiums charged by banks for creditor life insurance is almost always as much or more than personal life insurance and the creditor life is a considerably inferior benefit.

Once you qualify for personal life insurance, you have purchased TWO things. The first of course is the insurance, the second is the right to keep your insurability for the rest of your life.

Remember, not everyone is able to purchase life insurance or, more specifically, to be insured once they have 'lost their heatlh'. Make a note that even though a bank may issue a policy for creditor life insurance this does not mean the person is insured because the bank's insurance company does not evaluate the person's health until after they have passed away. This is when the bank insurer does all the research.

For personal insurance the insurance company does all investigations before making an offer for insurance. That way if you are not insurable, they will tell you and of course not collect any premium from you. Creditor insurance on the other hand will collect the premium from you, then after death could tell your beneficiary they are not paying the benefit due to you poor health before the date of application of insurance.