Insurance is synonymous to a bunch of people sharing risks of losses expected from a supposed accident. Here, the costs of the losses will be borne by all the insurers.
Just as Mr. Adam is able to buy an insurance policy and is paying to his insurer, a lot of other people in thousands are also doing the same thing. Any one of these people who are insured by the insurer is referred to as insured. Normally, most of these people will never have any form of accidents and hence there will be no need for the insurer to pay them any form of compensation.
The insurer will pay them based on their policy if Mr. Adam and a very few other people has any form of accidents/losses.
The moment Mr. Adam pay the premium, the insurer (i.e. the insurance company) issue an insurance policy, or contract paper, to him. In this policy, the insurer analyses how it will pay for all or part of the damages/losses that may occur on Mr. Adam’s car.
If Mr. Adam wishes and buys a new car to insure the vehicle against any expected accidents. He will buy an insurance policy from an insurance company through an insurance agent or insurance broker by paying a specific amount of money, called premium, to the insurance company.
It should be noted that the entire premiums paid by these thousands of insured is so much more than the compensations to the damages/losses incurred by some few insured. The huge left-over money (from the premiums collected after paying the compensations) is utilized by the insurer as follows:
1. Some are kept as a cash reservoir.
2. Some are used as investments for more profit.
Because it concerns the security of human life and business, the issue of life insurance is a paramount one. Life insurance offers real protection for your business and it also provides some sort of motivation for any skilled employees who decides to join your organization.
Apart from the vehicle insurance taken by Mr. Adam on his new vehicle, he can also decide to insure himself. This one is extremely different because it involves a human life and is thus termed Life Insurance or Assurance.
Life insurance (or assurance) is the insurance against certainty or something that is certain to happen such as death, rather than something that might happen such as loss of or damage to property.
Life insurance insures the life of the policy holder and pays a benefit to the beneficiary. The beneficiary is not limited to one person; it depends on the policy holder.
Life insurance policies exist in three forms:
– Whole life insurance
– Term Insurance
– Endowment insurance
– Whole Life Insurance
When a person express his wish in taking a Whole Life Insurance, the insurer will look at the person’s current age and health status and use this data to reviews longevity charts which predict the person’s life duration/life-span. The extreme high premium being paid by a younger person will reduce gradually relatively with age over the course of many years.
In Whole Life Insurance (or Whole Assurance), the insurance company pays an agreed sum of money (i.e. sum assured) upon the death of the person whose life is insured. As against the logic of term life insurance, Whole Life Insurance is valid and it continues in existence as long as the premiums of the policy holders are paid.
In case you are planning a life insurance, the insurer is in the best position to advise you on the type you should take. Whole life insurance exists in three varieties, as follow: variable life, universal life, and variable-universal life; and these are very good options for your employees to consider or in your personal financial plan.
If Mr. Adam dies within the age of less than 60 years, the insurance company will pay the sum assured. Mr. Adam lives up to 61 years and above), the insurance company pays nothing no matter the premiums paid over the term of the policy.
In Term Insurance, the life of the policy-holder is insured for a specific period of time and if the person dies within the period the insurance company pays the beneficiary. Otherwise, if the policy-holder lives longer than the period of time stated in the policy, the policy is no longer valid. In a simple word, if death does not occur within stipulated period, the policy-holder receives nothing.
Term assurance will pay the policy holder only if death occurs during the “term” of the policy, which can be up to 30 years. Beyond the “term”, the policy is null and void (i.e. worthless).
Term life insurance policies are basically of two types:
1. Level term: In this one, the death benefit remains constant throughout the duration of the policy.
2. Decreasing term: Here, the death benefit decreases as the course of the policy’s term progresses.
It should be note that Term Life Insurance can be used in a debtor-creditor scenario. A creditor may decide to insure the life of his debtor for a period over which the debt repayment is expected to be completed, so that if the debtor dies within this period, the creditor (being the policy-holder) gets paid by the insurance company for the sum assured).
Endowment Life Insurance
Life insurance insures the life of the policy holder and pays a benefit to the beneficiary. When a person express his wish in taking a Whole Life Insurance, the insurer will look at the person’s current age and health status and use this data to reviews longevity charts which predict the person’s life duration/life-span. In Term Insurance, the life of the policy-holder is insured for a specific period of time and if the person dies within the period the insurance company pays the beneficiary. Mr. Adam lives up to 61 years and above), the insurance company pays nothing no matter the premiums paid over the term of the policy.
In Endowment Life Insurance, the life of the policy holder is insured for a specific period of time (say, 30 years) and if the person insured is still alive after the policy has timed out, the insurance company pays the policy-holder the sum assured. If the person assured dies within the “time specified” the insurance company pays the beneficiary.