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Life Insurance Policy

An insurance policy taken against life transfers the losses caused by death of the insured to the insurer. Sometimes the insured does not buy the insurance policy for his/her. In this case there are three groups that will be involved in the life insurance contract - the entity who buys the policy, the insured person and the insurance company. Of course, another essential party to this transaction is the named beneficiary of the policy, the person or persons who will benefit from the insurance money in the event of the insured's death. On the other hand, one of the parties could take the role of two, for instance, I purchase the insurance policy to insure my life and assign my wife and children as the beneficiaries. Therefore, I will be the insured and at the same time the owner of the policy. Conversely, my wife could purchase the policy to insure my life and assigns herself as the beneficiary. Therefore she owns the policy and is the beneficiary as well.

The primary idea concerning this type of insurance policy is the insurable interest. The person to be insured should have an insurable interest. It might sound self-serving but this was practiced around the 19th century wherein people to speculate on the life of another person by buying an insurance policies on the life of another individual.

For instance, I could have some information that an acquaintance is going on a perilous trip. I could buy a life insurance policy against that individual's life wishing that he will never make it back and collect on a big insurance benefit. Today, you cannot do this anymore. You must first be able to show that having this person alive is much more beneficial for you than being dead. For instance, it is assumed that that your husband or wife is worth to you alive than dead or guardians, in case of young children, aside from these, all other relationships should have to be established for insurable interest. Such will be the case for a very important employee, a sports star, actor or artists wherein their employers could be allowed to insure their wards.

Generally, insurance policies will carry a suicide exclusion which will nullify the benefits if the insured take their own life normally within a year or two following the enforcement of the policy. There is also a contestability period if the client dies during this period wherein the insurance company will have all the rights to thoroughly examine the cause of death before settling the claims.

Just like in any insurance policy its value will be dependent on the insurable interest as well. For instance, if your husband gives you a $10,000 dollars worth of support annually, then you will no be able to purchase a $50 million insurance policy for his life. The insurance company will be computed depending on the amount that is supposed to be paid out and the risk level of the insured if he dies.

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