Life insurance is a contract between a person called insured and the company or "insurer" that is providing the insurance. If he/she dies while the contract is in force, the insurance company pays a specified sum of money free of income tax that is "cash benefits" to the person or persons he name as beneficiaries. It offers a way to replace the loss of income that happens when someone dies (generally the person who produces the majority of income in a family situation). Life insurance is a contract between the policy holder and the insurer, where the insurer agrees to pay a sum of money upon the happening of the insured individual's death or other event, such as terminal illness or critical illness. In return, the policy owner has to pay a stipulated amount called a ‘premium’ at regular intervals or in lump sums. It insures the life of the person buying the Life Insurance Certificate. Once a Life Insurance is sold by a company then the company remains legally responsible to make payment to the beneficiary after the death of the policy holder. There are designs in some countries where bills and death expenses plus catering for after funeral expenses must be included in Policy Premium.
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"Life insurance is a contract between the policy holder and the insurer, where the insurer agrees to pay a sum of money upon the occurrence of the insured individual's death or other event, such as terminal illness or critical illness on the payment of a premium".
In other words, life insurance is a policy that people buy from a life insurance company, which can be the source of protection and financial stability after one's death. Its function is to help the beneficiaries financially after the owner of the policy dies. It can also be a form of savings in the long run if one purchases a plan, which offers the option of contributing regularly. One more role of life insurance is that it can be tied in with a person's pension plan. A person can make contributions to a pension that is funded by a life insurance company. These are considered as private pension arrangements.
See Also: What is meant by Life Insurance?
A good life insurance program does more than just replacing the loss of income that occurs if one dies. It must also provide money to cover the new costs that arise after ones death — funeral expenses, taxes, probate costs, the need for housekeepers and child care, and so on. And these cash benefits must provide for hi/her family's future needs as well, including college education for his/her children and part or all of his/her spouse's retirement needs. In almost all cases, his/her beneficiary can use the cash benefits in the way he or she sees fit, without restriction.
See Also: What is a Term Life Insurance Policy?
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