Life Insurance

Overview

Life insurance is a contract in which a company agrees to pay a sum of money to a designated beneficiary when the insured person dies. Some people choose life insurance as a method of saving for retirement while others purchase plans for themselves and their family. In the United States, most life insurance policies are available in the form of a lump sum payment that is payable upon the death of the insured person.

How It Works

Life insurance is a contract. The beneficiaries are paid when the death of the insured life takes place. The company that provides the insurance (the insurer) bases policy costs on scales called mortality tables. Actuaries apply different mathematical rules and laws of probability to assess risk and benefit costs in order to predict the cost of various insurance policies.

Life insurance sales are based on numbers. The insurance companies take in more money in premiums each year than is necessary to pay out for customer deaths. This way, life insurance companies can cover operating costs and make a profit. The premiums for each life insurance policy received by the insurance company enter a pool of money that is used by the company to pay claims and also to pay for their operating costs. They also invest a part of the money to gain a profit, and grow their financial resources for their customers. Life insurance companies use a process of investigation called underwriting before issuing a person the policy. The person is questioned about his or her lifestyle and health, and in case of unfavorable replies, further investigations are undertaken before insuring the person's life. This process ensures that the customer is charged the appropriate amount of premium.

Benefits

The benefit of owning life insurance is that in the event of your death, your survivors will have enough money to take care of the expenses that you leave behind. Life insurance also helps you save money on taxes.

Cost/Pricing

In the United States, there are three things that affect life insurance rates. They include the age of the insured, gender, and the use of tobacco or any other high-risk behaviors. These elements help determine risks and format the probability tables for the base cost of life insurance policies.

Timing

There are life insurance policies for people of any age. Some companies have a fixed upper limit, usually 65 years, for providing the life insurance. Depending on your life stage and your financial goals, you can select the type of policies that suit your situation the best.

Companies/Industries

LifeInsure, American International Group (AIG), New York Life Insurance, Prudential Insurance, David Mickelson Insurance, and Globe Term Insurance provide life insurance in the United States.