Health Insurance Blog

Life insurance (Life Assurance in British English) is a type of insurance. As in all insurance, the insured transfers a risk to the insurer, receiving a policy and paying a premium in exchange. The risk assumed by the insurer is the risk of death of the insured.

There are three parties in a life insurance transaction: the insurer, the insured, and the owner of the policy (policyholder), although the owner and the insured are often the same person. For example, if John Smith buys a policy on his own life, he is both the owner and the insured. But if Mary Smith, his wife, buys a policy on John’’s life, she is the owner and he is the insured.

Life insurance companies are never required by law to underwrite or to provide coverage on anyone. They alone determine insurability, and some people, for their own health or lifestyle reasons, are uninsurable. The policy can be declined (turned down) or rated.

Rating means increasing the premiums to provide for additional risks relative to that particular insured discovered in the underwriting process. Term life insurance (Term Assurance in British English) provides for life insurance coverage for a specified term of years for a specified premium.

The policy does not accumulate cash value. Term of life insurance quote is generally considered “pure” insurance, where the premium buys protection in the event of death and nothing else. See Theory of decreasing responsibility and buy term and invest the difference.

Permanent Life insurance is life insurance that remains in force until the policy matures, unless the owner fails to pay the premium when due.

Whole Life insurance provides for a level premium, and a cash value table included in the policy guaranteed by the company.Universal Life insurance is a relatively new insurance product intended to provide permanent insurance coverage with greater flexibility in premium payment and the potential for a higher internal rate of return.

Variable universal life insurance is the same except that the rate of return on the cash account is related to separate accounts that work like mutual funds. Another type of permanent insurance is limited-pay life insurance, in which all the premiums are paid over a specified period after which no additional premiums are due to keep the policy in force.