What is Life Insurance

1. WhatisLifeInsurance?

2. Areyouunsureofwhat is life insurancemeans? A life insurance policy is simply a contract between a person and an insurance company, under which the firm agrees to pay a predetermined sum of money to the person's beneficiaries or family in exchange for a series of payments over time. These payments, which go by thename"premium," areoften madeannually.Thepolicyholder is the one who purchases the insurance. Life insurance guarantees a lump sum payment to the familyin the eventofan untimelydeathof thepolicyholder. Moneycannot replace the loss, but it guarantees that the family won't face any financial difficultiesevenafterthedeathofthebreadwinner.Thelifeinsurancepolicy gives you the necessary protection against risk and gives you the chance to increase your savings. It is also a useful tool for helping you save money for potential future needs like a child's wedding or higher schooling. Particularly for people who haveyoung children,specialneedschildren,want to ensurethe financial security of their family, or want to accumulate money over time, life insuranceis important. WhatisLifeInsurance?

3. 1. Insurable Interest: Thisrulewasestablishedtosafeguard insurancepoliciesfromany type ofabuse.It relatesto thedegreeofinterestinthelifeinsurancepolicythattheprospectivepolicyholderisthoughtto have. Thisinterestcouldtaketheformofaclosefriendship,strongfamilialties,etc.Theinsuranceprovider decideswhethertoacceptorrejecttheperson'sapplicationforcoveragebasedontheirlevelofinterest. • 2. MinimalRisk:Anybusinessthatofferslifeinsuranceassumes somelevelofrisk because theywill eventuallyhavetoprovidetheassuredpayment.As a result,thebusiness wouldwishtomaintainaminimal amountofrisk.Theinsurermayreviewtheapplicant'smedicalrecordstomakesureof this. • 3.GoodFaith:Alifeinsurancepolicyisprimarilya contractbetweentheinsurerandthepolicyholder,aswas alreadyexplained.Thisagreementisbased onthe goodfaithbeliefthatbothpartiesaredisclosingall materialfactsinastraightforwardmanner.Withholdinganyinformationcouldhavedetrimentaleffects.For instance,if theinsurancecompanylearnsthatthepolicyholderhada pre-existingcardiacproblembutfailed to discloseit whenthe policywaspurchased,theymaydenythebeneficiary'sclaimafterthepolicyholder's passing. • 4.TheLawofLargeNumbers:Thisfundamentaltenetoflifeinsuranceisbasedonthestatisticaltheoremthat suggeststhatvariationstendtoaverage outas numbersincrease.Essentially, thisindicatesthatbecauselife insuranceisalong-terminvestment, thegainsandlosses willbalanceoutovertime,loweringthepolicy holder'srisk. PrinciplesofLifeInsurance

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