Life insurance can be defined as an agreement between the insurer and the insured. In this contract two things are important; firstly, is the insured must pay specified sum of money to the insurer at regular intervals. Secondly, the insured on the other hand commits to pay a specific amount of money upon the death of the insured or in such an event as terminal illness.
There are different parties in the insurance contract and is not necessarily that only the insurer and the insured are involved. Therefore there exist a difference between the policy owner and the insured, while the insured is that particular person who's upon his death compensation shall be made, the policy owner is the person who furnishes or buys the policy; in this case he may be the insured or completely different person altogether. In the case that the insured is not the policy owner then the policy owner must possess what is known as the insurable interest. This is met to ensure that the owner will suffer some form of loss upon the death of the insured and therefore there are minimal cases that he may take part in his death.
The price of policy is calculated by actuaries' based on mortality tables; it puts into consideration such factors like age, tobacco use, occupation and gender of a person. In doing this they ensure the administrative cots, profit to the company and of course the claim fund are taken care of in price set.
Before the claims are paid, sufficient proof of the insured death must be provided. On the other hand where the death raises suspicious the insurer may investigate to determine the actual death cause. There exist different forms of life insurance; term, permanent and variable life insurance policy.
The importance of life insurance cannot be over emphasized for example the cash surrender value may be used to earn interest as a form of investment. The payment done upon death may serve to be of utmost importance in easing the burden left to the dependent. They may use it to pay for children education or even as a source of income to the family.