Life Insurance: Getting Back to the Basics

A Piece of History on Life Insurance

The contemporary insurance contracts that we have today, such as life insurance, stem from the 14th-century practise of merchants. It has also been recognised that various types of security agreements have existed from the dawn of time, and that they are in some ways similar to insurance contracts in their infancy.

Life insurance's remarkable expansion from absolutely nothing a century ago to its current colossal proportions is not one of modern business's outstanding marvels. Because of the continuous demand for economic security, the growing need for social stability, and the clamour for protection against the perils of cruel-crippling tragedies and sudden economic shocks, life insurance became one of the basic necessities of humankind. Insurance is no longer a monopoly of the wealthy. Insurance contracts are now plagued with the guaranteed hopes of many families of modest means, as opposed to the days when it was exclusively available to the social elite. It's braided into every nook and corner of the national economy, as it were. It touches upon the holiest and most sacred ties in the life of man. The love of parents. The love of wives. The love of children. And even the love of business.

Life Insurance as Financial Protection

A life insurance policy pays out an agreed amount generally referred to as the sum assured under certain circumstances. The sum assured in a life insurance policy is intended to answer for your financial needs as well as your dependents in the event of your death or disability. Hence, life insurance offers financial coverage or protection against these risks.

Life Insurance: General Concepts

Insurance is a risk-spreading device. Basically, the insurer or the insurance company pools the premiums paid by all of its clients. Theoretically speaking, the pool of premiums answers for the losses of each insured.

Life insurance is a contract whereby one party insures a person against loss by the death of another. An insurance on life is a contract by which the insurer (the insurance company) for a stipulated sum, engages to pay a certain amount of money if another dies within the time limited by the policy. The payment of the insurance money hinges upon the loss of life and in its broader sense, life insurance includes accident insurance, since life is insured under either contract.

Therefore, the life insurance policy contract is between the policy holder (the assured) and the life insurance company (the insurer). In return for this protection or coverage, the policy holder pays a premium for an agreed period of time, dependent upon the type of policy purchased.

In a similar line, life insurance is an important item to consider. This indicates that it is not an indemnification contract. In most cases, the insured person's stake in his or another person's life cannot be measured precisely in money. You can't put a monetary value on a person's life. As a result, the measure of indemnification is whatever the policy specifies. If it is a situation involving a creditor who insures the life of a debtor, however, the interest of a person insured becomes accessible to accurate financial calculation. Because the interest of the insured creditor is dependent on the value of the obligation, it is measurable in this circumstance.