What Are Life Insurance Policies and How Do They Work For You?

A life insurance policy is a kind of a contract that is struck between the insurance company and policy owner. Under the terms of the policy, the insurance company will be required to pay a particular sum of money to a mentioned beneficiary of in case of the owner’s death. In some cases, the life insurance policy amount can also be paid to the beneficiary in case of the owner suffering from a critical medical condition or a terminal illness.

In return for this service, the policy holder promises to pay a set amount of money, at regular intervals, to the insurance company. The insurance owner can also choose to pay a lump sum of money altogether at one point of time also if he or she chooses to do so. In many cases, the policy holder can specify that the amount to be paid must include bills, expenses and charge related to his death that would have to be born by his beneficiaries.

In total, life insurance policies can simply be defined as a basic contract that a person agrees to set up with an insurer so that his family members whom he can name as his beneficiaries have some financial income after his death. For a person to get the inheritance form the life insurance policy, he or she should have been named in the insurance contract as a beneficiary to the policy owner.

The condition of the amount to be paid may be death or any other insured event like an illness or a disability and would have to be covered under the terms of the policy. It is a contract that gives a policy holder a secure feeling and peace of mind in knowing that his loved ones will not have to face any financial crunch once he or she is no longer there to take care of their needs.

There are several events for which people can undertake a life insurance policy. A person suffering from a life threatening serious illness can opt for a life insurance policy amount to be paid to his or her beneficiary. But there are some limitations that are legally binding in the contract and these limitations are to be mentioned in the life insurance policy plainly. The main exclusions to the life insurance policies include death resulting from fraud, riots, war, suicide and civil tensions.

Life insurance policies can be basically classified into two kinds:

Protections Policies

These policies are developed to cover the risk related to certain specific events, in case of occurrence of which a lump sum of money will be paid to the beneficiary.

Investment Policies

Under this type of policy, a contribution to the main capital account is made on a regular basis through payment of premiums.

Once the insurance policy holder dies, the beneficiaries have to provide proof of the policy holder’s death to the insurance company. Only then will the insurance company pay the required amount. The insurance money from the life insurance policies may be paid as a lump sum amount or as an annuity, paid to the beneficiaries over a period of time.