Life insurance is one of the most common types of insurance today. It is defined as a contract between a policyholder and an insurer such that upon the death of the policyholder, the beneficiaries as per the agreement are entitled to payment which covers things such as the hospital bills and funeral expenses. During the lifetime of the policyholder, they pay for the insurance either in premiums or as a lump sum as per the agreement. However, life insurance covers also have their limitations to reduce liability. The most common limitations include claims from war, riot or suicide.

Life insurance policies are classified into two major categories: protection policies and investment policies. Protection policies refer to the life insurance covers made in such a way that the beneficiaries of a policyholder receive a lump sum of money upon the death of the policyholder such as term insurance. Of the two classes, this is the more common option. The investment policies are those whose primary objective is to ensure capital grows by regular premiums. Examples of this type of policies are protection policies, variable policies, and universal life.

The primary goals of insurance companies are to match the risk of someone dying to the premium contributed. If there is a higher risk of a person dying may be due to a chronic disease, the premiums they pay are higher than those of perfectly healthy people. Other factors that influence the risk of death include weight, medical history, lifestyle, gender, and occupation. Although these factors help organize to understand and determine the amount of premiums to be paid, it is impossible to tell the chances of someone dying. This type of premium calculation is not only done in life insurance policies but also in other types of insurance where a greater risk of occurrence of an event leads to higher premiums.

People take up life insurance policies due to a variety of reasons. For instance, a person may choose an insurance policy so that their children do not suffer once they die or avoiding the financial burden to the family that comes due to the funeral costs. While some people choose to pay premiums for the rest of their lives, others prefer to pay premiums for a short period of like ten years after which the insurer will not pay the policy after the period elapses before the death of the policy. For instance, an individual can choose to pay for life insurance until their children turn eighteen.

Before settling on life insurance, it is essential for a person to understand the difference between the different types of insurance policies available. First, there is the annual renewable term insurance whereby a person renews their contract after one year. However, with every renewal, the premium cost also increases since the risk of death increases with age. Secondly, there is the level premium term insurance in which a person is not allowed to revise or renew the contract, and the premiums are constant throughout the specified time. The advantage of a level premium over the annual renewable one is that a person using the level premium does not have to increase the premium contribution as they grow older as with annual renewable. Also, there is the convertible term insurance in which a policyholder is at liberty to convert term insurance to another type of insurance being offered by the insurers such as the whole life and universal.

 
Do you need high quality Custom Essay Writing Services?