There are three fundamental types of insurance.
- The life insurance industry
- Business of non-life insurance
- The reinsurance industry
What is Life Insurance?
Life insurance is protection against the danger of a person’s death. It is a method of reducing or managing risk. It offers financial security in the event of a tragedy. Life insurance policies might also help you save money in the long run.
Life insurance is a sort of financial contract entered into between an insurance company and an individual for a set length of time. The individual establishing the agreement acts via himself or his representative subject to the insurance company’s terms or conditions, and the insurance company commits to cover the risk in exchange for the payment of a premium.
According to the Insurance Act of 2049, a life policy business is one in which a person receives a specific amount in the event of his/her death or a large amount after the maturity of the insurance if he/she pays a particular amount in instalments dependent on his/her age.
Agreement of the Parties
In the insurance industry, the insurance company is referred to as the insurer. The person who purchases the insurance coverage is referred to as the insured. And the middleman or representative is referred to as an agent. Once the term for life insurance has been determined, the insured determines the amount to be insured in accordance with the agreement for the full period. It is up to the insured to select how much insurance to purchase.
A life insurance contract must be executed with a life insurance company in order to insure life. Typically, the contract is for a minimum of five years. The premium is decided by the insured’s age, sum insured, health status, and other factors. The higher the likelihood of the insured’s mortality, the higher the premium to be paid. It might be paid annually, quarterly, or monthly, depending on the insured’s preference.
The insurance process begins with the completion of the insurance proposal form and the submission of personal health information. Such forms are available from the relevant insurance firms. These forms can be submitted by the insured individual or by the insurance agent. The agreement is signed between the insurer and the insured after all of the data in these documents have been reviewed.
Why do you need life insurance?
Life insurance is purchased to ensure the financial stability of an individual or his or her family. After the insurance period has expired, the person will be entitled to receive the lump sum amount specified in the policy as well as any additional funds received during that time. In the insurance industry, the extra money obtained in this manner is referred to as a ‘bonus.’
Human existence is full of disasters of many kinds. Death is the most terrible of all disasters. Premature death can occur as a result of sickness, accident, or any other cause. In such a circumstance, insurance provides a means of providing financial support to the deceased’s family. The advantages of having insurance differ depending on the type of insurance. In general, the insurance company pays a pre-determined lump sum to the legitimate claimant in line with the legislation in lieu of the premium collected from the insured if the insured survives or dies within the policy period.
If the insured survives, he or she receives the predetermined amount as well as a bonus from the insurer’s earnings. If the insured dies within the insurance period, even if just a portion of the premium has been paid, his or her heir receives the pre-determined sum insured plus bonus.
Types Of Life Insurance
Life insurance is broadly classified as follows:
a. Permanent Life Insurance
b. Life Endowment Insurance
c. Term Life Insurance
d. Annuity Insurance
Whole Life insurance
Whole life insurance is a type of insurance in which the insured’s nominee receives the sum insured only after the insured’s death, if the insured has made instalment payments up to a certain point in time. This type of insurance is less expensive than other types of insurance.
When purchasing whole life insurance, the insured pays the premium until the date specified at the outset; if the insured dies before the term expires, the dependent receives the full sum insured without having to pay the future payment.
Unlike term life insurance, the insured does not receive the sum assured throughout his or her lifetime under this plan. According to the insurer’s rules, the life insurance plan can also be converted to a term or term life insurance plan. Whole life insurance policies can be acquired with or without a profit sharing from the insured (bonus amount).
Endowment Life Insurance
Endowment life insurance is insurance in which the insured (if alive) or the nominee (if the insured dies) receives the large insured sum plus a bonus once the policy period expires. In order to do so, the insured must pay premiums in instalments over a set length of time. This type of insurance is typically for a term of five to fifty years. This type of insurance is especially common in poor nations such as Nepal.
Term Life Insurance
Term life insurance is a type of insurance in which the insured’s nominee receives a lump payment if the insured dies during a set term. This type of insurance does not provide a savings benefit like whole life or endowment life insurance. As a result, the premium is significantly smaller.
Annuity insurance is a policy that pays a monthly, quarterly, half-yearly, or yearly income to the insured for the rest of his or her life or for a set amount of time after the insurance period expires (similar as pension). In exchange for the premium payments made during the insurance period, the insurance company produces a stream of income or payments for the insured.