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With life insurance, the insured is transferring the risk of death on to the insurer. It is not always the case that the insured is insuring their own life. Therefore there are three parties in a life insurance contract, the insurer, the insured person, and the owner of the policy. The other vitally important party is the beneficiary; this is the person who receives the insurance money if the insured’s death does occur. One or more of these parties could be the same person, for example, if I insure my own life and make my spouse the beneficiary, then I am the insured and the owner. Likewise, if my wife insures my life and makes herself the beneficiary, then she is the owner and the beneficiary.

An important concept in this regard is insurable interest. You must have what is known as an insurable interest in the life of the person you are insuring. Believe it or not there was a practice in the nineteenth century whereby people would take out speculative insurance policies on the life of another.

For example, if I knew you were going on a dangerous voyage, I might take out a life insurance policy on you in the hope that you wouldn’t make it and I would get a big payout. These days you cannot insure anybody’s life. You must show that you have an interest in that person being alive. You are presumed always to have an interest in the life of your spouse and guardians, if you are a minor, but all other relationships will have to prove the insurable interest. If employers have a very highly valued employee, or sports teams have a star player, or a famous actor contracts to make a film, their employers will be able to insure their lives.

Most life insurance policies will have a suicide clause stating that if the insured commits suicide, usually within a period of two years, the policy will not pay out. There is also a contest period. This will also be approximately two years and if the insured dies within this period, the insurance company has greater rights to investigate the death before deciding whether or not to pay out.

The value of the insurance policy will be subject to the principle of insurable interest also. For example, if your spouse provides you with $10,000 per year in support, you probably will not be able to take a $50 million insurance policy on their life. The premium will be calculated based on the amount to be paid out and the assessed risk of the insured’s death

Joseph Kenny is the webmaster of the insurance site http://www.insure121.com/ where you will find information, news and links to the leading providers of insurance in the UK. If you found this article interesting you may find more articles of the same nature in the insurance guide located on site.

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Most people are aware of how life insurance works and what are the events and dangers that it is designed to protect against. They may also have family commitments and people who they provide for and know that some sort of life insurance would protect their family financially, if something were to happen to them. However, it is still often a very difficult decision to make if you are trying to decide whether or not you need life insurance.

Life insurance is a big commitment financially speaking. The premium can vary in cost but can be considerable, then there is also the issue that life insurance often extends over many years, even decades. This means that not only are you committing to pay the premium for this year, but also for many years into the future. There are not many people who can say with certainty what their earnings will be in ten or fifteen or twenty years time.

There are also early termination penalties, which means if you want to end the policy before the expiration of the entire term, you will be financially penalised. This is generally more relevant for life assurance but can also apply to life insurance if your rate has been calculated on the condition that you remain insured for so many years into the future.

If you have life assurance, then it will also be a method of saving for the future. This is a very popular concept, especially these days with the growing concern about the state of pension funds, but it again deserves careful consideration. There are many ways to save for the future, and by deciding to do so by way of a life assurance policy still entails deciding that life insurance is something that you want and are willing to pay for. If you do not need life insurance, then there are probably more efficient ways of saving for retirement than with life assurance, which places a proportion of your savings against the insurance aspect of the policy.

In general, most people will really only be considering life insurance if they have a family to support. This can be a spouse and generally children. However, situations frequently change, people get divorced, and children always grow up and become independent. If your family situation is likely to change, you should familiarise yourself with the ways you can end the policy early and what penalties would apply. However, if you have a young family and are concerned about their financial security for the future, then life insurance will be a great opportunity for you to provide for these concerns.

Joseph Kenny is the webmaster of the insurance site http://www.insure121.com/ where you will find information, news and links to the leading providers of insurance in the UK. If you found this article interesting you may find more articles of the same nature in the insurance guide located on site.

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Insurance involves transferring a risk that you bare, onto an insurance company, so that you no longer have to worry about the event occurring. While you pay a fee, or premium for this, what you get in return is peace of mind. So what is the risk that you are transferring with life insurance? Well, quite simply, it is the financial risk of your own death. It should also be remembered that it is in certain circumstances possible to insure the life of another person, such as your husband or wife, or an important employee. The insurance company will then pay out to the named beneficiary once the event occurs, and this is usually a family member or business associate of the insured.

The thing that insurance companies will be looking for is insurable interest. It may come as a surprise but in the early days of aviation, there were some clever entrepreneurs who would hang around at airports and buy life insurance policies on the passengers. Since plane crashes were very common, a good proportion of the insured passengers died and the insurance companies were faced with the prospect of paying out vast sums to these men.

This is not the reason insurance was developed and the system was not designed to cope with this kind of speculation. Therefore the rule developed that you could only insure the life of someone you had a real interest in surviving. There is also the public policy issue that it would be tempting to some people to insure strangers and then make sure they died soon.

The insurance policy will have two important details defined right at the outset. The first is who is to be paid out under the policy. While this seems obvious, it is important to think carefully about it as, unlike in most insurance contracts, the purchaser of the policy is rarely the beneficiary under a life insurance policy.

The second is the amount to be paid out on to occurrence of the event. It must be remembered that this is also subject to the rule of insurable interest and therefore you cannot have a policy on your life for more than your life is reasonably financially worth. Since the premium is partially calculated on the amount of the payout, you will simply be paying for more insurance than you can receive. Therefore be honest with how much you earn and how much support your providing to your family so that the premium will be accurately assessed.

Joseph Kenny is the webmaster of the insurance site http://www.insure121.com/ where you will find information, news and links to the leading providers of insurance in the UK. If you found this article interesting you may find more articles of the same nature in the insurance guide located on site.

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