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What is life insurance and how does it work?
What is life insurance?
Life insurance is a contract between an individual(s) and an insurance company where in the event of death a lump sum is usually paid to the insured deceased's estate. Usually, the life insurance contract runs for an agreed period of time, called 'the term'. The insurance company will charge a monthly premium for the specified level of life cover. How much the life insurance premium is will be determined by the insurance company underwriters based on a number of factors including your age and medical history. Quite simply the greater the chances of a premature death the higher your premium will be. A life policy that insures only a single person (often called a single life insurance policy) will stop once a claim is made or the term expires, whichever is earlier. Most life insurance policies only have a value in the event of a claim, they can not be cashed in, much like car insurance. It is possible to take a life insurance policy out on a joint life basis which means that the policy will insure the lives of more than one person. In this instance, the policy can be set up as 'joint life first death' or 'joint life second death' which determines at which point the policy pays out.
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