What is Life Insurance?

Life insurance is a contract between an insurance policy holder and an insurer, where the insurer promises to pay a designated beneficiary a sum of money (the “benefits”) upon the death of the insured person. Depending on the contract, other events such as terminal illness or critical illness may also trigger payment. The policy holder typically pays a premium, either regularly or as a lump sum. Other expenses (such as funeral expenses) are also sometimes included in the premium.

Life-based contracts tend to fall into two major categories:

Protection Policies

Designed to provide a benefit in the event of specified event, typically a lump sum payment. A common form of this design is term insurance.

Investment Policies

Where the main objective is to facilitate the growth of capital by regular or single premiums. Common forms (in the US) are whole life, universal life and variable life policies.

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