Definition of Insurance

Insurance may be defined as a promise of reimbursement in the case of loss; paid to people or companies so concerned about hazards that they have made prepayments to an organization owned by the government or any giant private firm.
Insurance, in law and economics, is a form of risk management primarily used to hedge against the risk of a contingent loss and hence it can also be defined as the equitable transfer of the risk of a potential loss, from one entity to another, in exchange for a premium.
Insurance can also be defined as a system to protect persons against the risks of financial loss by transferring the risks to a large group who share the financial losses.
Insurance allows someone who suffers a loss or accident to be compensated for the effects of their misfortune. It lets you protect yourself against everyday risks to your health, home and financial situation.

Life Insurance

Life insurance or life assurance is a contract between the policy owner and the insurer, where the insurer agrees to pay a designated beneficiary a sum of money upon the occurrence of the insured individual’s or individuals’ death or other event, such as terminal illness or critical illness. In return, the policy owner agrees to pay a stipulated amount at regular intervals or in lump sums. There may be designs in some countries where bills and death expenses plus catering for after funeral expenses should be included in Policy Premium. In the United States, the predominant form simply specifies a lump sum to be paid on the insured’s demise.

As with most insurance policies, life insurance is a contract between the insurer and the policy owner whereby a benefit is paid to the designatedbeneficiaries if an insured event occurs which is covered by the policy.

The value for the policyholder is derived, not from an actual claim event, rather it is the value derived from the ‘peace of mind’ experienced by the policyholder, due to the negating of adverse financial consequences caused by the death of the Life Assured.

To be a life policy the insured event must be based upon the lives of the people named in the policy.

Insured events that may be covered include:

Serious Illness

Life policies are legal contracts and the terms of the contract describe the limitations of the insured events. Specific exclusions are often written into the contract to limit the liability of the insurer; for example claims relating to suicide, fraud, war, riot and civil commotion.

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 anyway) are whole life, universal life and variable life policies.