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Life insurance is is a contract between an insurance company and a policyholder. Throughout the coverage period, the policyholder agrees to pay a premium at regular intervals specified in the contract, which could be monthly, semi-annual, or annual.
In return for these premium payments, the insurance company is obligated to pay a lump sum or annuity, including any accrued interest, to the beneficiary, but only if the conditions outlined in the contract are met.
Life insurance policies generally fall into two main categories: those that provide coverage in the event of the policyholder's death and those that offer benefits while the insured is still alive. There are also flexible and mixed coverage options. One of the most common types, term life insurance, pays out a lump sum to the beneficiary if the insured person passes away during the policy term.
The policyholder doesn't have to be the insured person:
the insured could be a relative or someone outside the family.
Beneficiaries can be named when the contract is signed or later, even through a will. To ensure the beneficiary receives the insurance payout,
they must be aware of the policy's existence.
Before finalizing a policy, the policyholder selects the insurance product that best meets their needs. The insurance company then conducts a preliminary evaluation to assess:
This evaluation considers critical factors such as the insured person's health and personal circumstances. In some cases, such as like with online insurance policies, the insured can self-certify their health status. If If self-certification isn't possible, a medical examination may be required.
Factors such as pre-existing conditions, participation in risky sports, occupation, and smoking status can influence the premium amount and the type of coverage available..
Term life insurance policies have a defined start and end date, and it's crucial to choose the appropriate duration for the policy.
This period is when the insurance coverage is active.
The start date, or commencement, often coincides with the contract signing but can be set for a different date based on the agreement between the parties.
When determining the duration of a term policy, consider why and for whom you are taking out the insurance. Use specific timeframes as a reference, such as:
For example, a parent with young children might choose a policy that lasts until their children are financially independent. Similarly, a couple might select a term life insurance policy that provides economic protection until they retire.
Typically, term insurance policies range from 1 to 30 years. Some insurance companies offer the option to renew the policy annually, depending on the contractual terms. This flexibility can be beneficial if the initial insurance needs change or no longer exist.