Today I want to start talking about life insurance. It’s a coverage that many people don’t have, but should. Before buying coverage, it’s best to know what it does, what it costs and how much you need to have. So, let’s start with the basics.
Parents take out life insurance on themselves “to protect their children.” One spouse has been known to kill the other so he/she can take the insurance and make himself/herself rich. What’s the fuss all about? Why does insurance lead to so much good and yet so much bad? What exactly is life insurance?
Life insurance is a financial package designed to protect those who depend upon you for monetary support. A life insurance policy is a legal contract. Within it are terms and conditions of the risks assumed. Any misrepresentation by the policy holder or the insured will be grounds for nullification of the insurance.
To understand the concept of life insurance, you first have to know the parties involved. In general, there are three: the insurer, the insured and the policy holder.
The insurer is the party that provides the insurance policy. The insured is the person who benefits from the insurance. The policy holder is the person who takes out the insurance and pays for it. For instance, if you buy a policy for your spouse and take a policy on his or her life, then you are the owner, and your spouse is the insured. The policy holder and insured can sometimes be one and the same, as in when you buy a life insurance policy for yourself.
In some cases, a fourth party called the beneficiary is involved. The beneficiary is the person or persons who will “benefit” from the death of the insured. The beneficiary is strictly not party to the policy, but may be designated by the policy holder. The beneficiary may also be changed by the policy holder, unless the policy has a clause preventing it. Should a policy have such a clause, the beneficiary must agree to any changes made in the policy.
Next time we’ll continue going into the ins and outs of life insurance, but remember, at any time the best help and advice will come from your independent insurance agent, whose job it is to get you the answers you need.