What is life insurance?

Life insurance is a special type of insurance policy, where the insurer agrees to make a payment upon the occurrence of the death or other significant event relating to the insured person.  In return, the policy owner of a life insurance contract agrees to make regular periodic payments, called premiums, to a licenced life insurance firm.  Life insurance is also known as life assurance, and is a legal contract which can be divided into two basic classes:  protection insurance, and investment insurance.  Permanent investment policies can be further sub-divided into specific whole life, universal, and endowment policies, with different companies offering different versions of these basic types.  Many people researching life insurance are initially confused by the many different policies and procedures involved, however, most life insurance policies fall into these two distinct categories, each of which is easy to interpret and understand on its own terms. 

In the vast majority of protection-based life insurance policies, the policy owner decides upon a beneficiary or group of beneficiaries to receive the insurance benefit once death has taken place.  Life insurance (http://www.lifeinsurance.org/) policies are always related to the individual life of the person named in the contract, and serious illness is the only event other than death that most insurers will consider covering.  Protection policies like term insurance are designed to benefit the beneficiary with a lump sum payment at the time of death or the onset of serious illness.  Term insurance and other related protection policies provide coverage for a specific number of years for a specified premium, and are often considered to be a 'pure' kind of insurance that does not accumulate a cash value and can not be used for individual investment purposes.   

Investment policies, in contrast, are designed more for financial purposes, to facilitate the accumulation and growth of capital as well as providing assurance at the time of death.  There are a number of different kinds of life insurance policies that are investment related, including most universal life, whole life, and variable life policies.  These policies accumulate a cash value, are permanent in nature, and differ from temporary term policies that list a specified time period in the contract.  Permanent life insurance remains valid until the policy is paid out or the owner fails to pay the premium, and can be used for individual investment as well as protective purposes.  The different kinds of investment policies differ in relation to the amount of death benefit available, specific interest rates, and how much cash is available throughout the term of the policy.  Life insurance is vital for the financial well being of people from all over the world, and understanding the differences between each type is the first step when researching individual policies.