Life insurance
Life insurance is a contract between a policy holder and an insurer, whereby the insurer promises to pay a designated beneficiary a sum of money (the benefit) in exchange of a premium, upon the death of an insured person (often the policyholder). Depending on the policy conditions, other events such as terminal illness or critical illness can also trigger payment. The policyholder typically pays a premium, either in instalments or as a 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 included so as to limit the insurer's liability; common examples are claims relating to suicide, fraud, war, riot, and civil commotion. 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.
