Most of us must have heard and used the phrase “Nothing is Permanent” on various occasions in our life. This phrase not only stands for things. It also holds true for human beings.
One has to accept the reality of life that you or your family members or your friends or anyone you know is not going to be around forever. At some point, each and every person has to lay down their weapons and live with what they have invested their entire life for!
Before a person reaches this stage, he/she can do long-term financial planning to secure their beneficiary’s future! And this planning is by investing in life insurance policies. 🙂
But, before you invest in any of the life insurance policies, you must understand how and when life insurance payouts are delivered to beneficiaries.
Thus, here we are with almost all the details which you need to know about how life insurance policies works? and How these Insurance companies make money by providing you so many benefits. which you must know before investing in them!
Note: InsuraceArcade tries the possible ways and most prominent language plus wording to make this article “How Does Life Insurance Policies Actually Work” super easy to understand without creating any more doubts! – Maxwell
The idea of a life insurance company is quite simple. 😋
The policyholder (One who buy Insurance plans like me and you 🙂 ) pays a certain amount of money for a certain duration of time to an insurance company.
If the policyholder dies while the policy is active, the insurer pays out a tax-free amount of money to the beneficiary.
There are different types of life insurance policies which one can choose from. These options are based on duration, conditions, etc.
There are some policies which pay the beneficiaries a promised amount of money after the death of the breadwinner of the family while some policies are designed to pay after an agreed duration of time.
What is covered by Life Insurance?
Since a sense of greed might develop in a person, it can lead to an unlawful act such as a fraud or the murder of the policyholder. Thus, to keep any such event from happening there are some cases which have been defined in which, the insurer will not pay out the death benefit.
These cases can be such as suicide within the first two years of holding the policy, a beneficiary murdering the policyholder, or where application fraud was found.
Apart from these cases, life insurance will cover most of the causes of death, ranging from illness, accident, to natural causes. However, the beneficiary has to file a death claim with the insurance company and as a proof, submit a certified copy of the death certificate of the policyholder.
Umm! Doesn’t it make senses? 🙁 Well, Here’s the list of complete things that are covered by Life Insurance Policies.
Type of Claims and Death Coverage in Life insurance
This coverage might vary with the country to country but most of them are Mandatory for all companies as per government rules.
- Natural Death or Health Problem Death
- Self-harmed injuries
- Natural Disaster like Flood, Hurricane, Draught
- Get Murdered
- AIDS/HIV/Heart/Brain Tumor
- Death due to overdoes of drugs and Alchohol
Most insurance companies pay within 30 to 60 days of the date of the claim. 🙂
Who should opt for Life Insurance Policy?
Families which have a single breadwinner, business partners, are some of the people who must have life insurance since you need money to pay your bills after your breadwinner dies or you must expand your business as a tribute to your partner with the help of the death benefit.
But, almost EVERYONE should have life insurance since nobody can predict their future choices of getting married or having kids, who might need this death benefit one you are gone.
We strongly recommend you to MUST OPT 🙂 for some Serious plans of Life and Term Insurances.
Well, I know many of you might be thinking that what if you don’t have any future plans or any other dependents? Then Should you go for Life Insurance Premiums?
Well, AGAIN my Answer is YES! 🙂
Top 3 Reasons why you must have to buy Life Insurance Plans?
Here are the reasons (I’m not associated with any Insurance Company nor going to promote any so this is my personal opinion)
#1 Right at the moment, you are free from all kind of loads and financial problems. What if near future or at some point you may choose to get married? After you may choose to have children? 😛
You must have to be ready for all financially safeguards for them from the chance of your unfortunate death?
Well, lots of questions and lots of possibilities. We are in 2019, and as we all know the risk of our lives.
#2 Imagine, You have an immense home loan, car loan, education loan or some other financial responsibility and you just need to cross for it.
No one wants someone else to accumulate up the scraps after your demise. At this time, Life Insurance helps you out as we mentioned in the above paragraphs.
#3 Also, If you are a Business person or startup builder then Life or Term insurance policies will definitely help you in your near future. It also comes up with some additional benefits such as pension scheme, critical illness, an accident.
What could be the reason for a delay in payouts?
One of the most prominent reasons for a delay in the payout can be an investigation of the death of the policyholder.
If the person died within the first two years of the purchase, the beneficiaries can face delays of 6 to 12 months.
The reason stated by the insurance company can be ‘one- to two-year contestability clause.’ Most of the life insurance policies contain this clause, which allows the insurance company to investigate the death of the policyholder to ensure that any kind of fraud has not taken place.
Types of life insurance policy?
There are different types of life insurance policies which you can choose from. They have been discussed below in detail.
#1. Term life insurance:
This type of life insurance is defined as a diuretic number of years. Also, your premiums are fixed. Once you stop paying the premiums, your insurance expires and no benefit is obtained. However, your beneficiaries can get a death benefit if your policy has not yet expired.
#2. Whole life insurance:
In this type of life insurance, there is no fixed duration for which you have to pay the premium. However, the death benefit increases with an increase in the number of premiums paid. Also, the premium can be used to take loans by the policyholder. If not repaid, the loan amount is reduced from the death benefit which is meant for the beneficiaries.
#3. Universal life insurance:
The death benefit in this type of life insurance depends upon the stock index of the insurer. If the stock indeed is high, it increases the death benefit and vice versa. Thus, it is not a recommended life insurance policy.
#4. Variable life insurance:
This life insurance policy is similar to the universal life insurance policy. But, the only difference is that the policyholder can decide which assets to invest in!
#5. Variable universal life insurance:
As the name suggests, this life insurance policy is a combination of variable life insurance and universal life insurance, which means that it takes the premiums of universal life and applies them in numerous assets of variable life.
These were some of the different types of life insurances, which you can choose from!
How much do Life Insurances Cost?
The cost of purchasing life insurance varies, based on a number of factors which are listed below.
1. Age (Minor/Adult/Old)
2. Gender (Male/Female)
3. Nicotine use (Alcohol/Non-Alcoholic)
4. Medical history.
5. Family health history, among immediate family members
6. Dangerous hobbies, such as paragliding.
7. Traveling to the tricky parts of the world (Like Israel)
8. Other risk factors, such as your driving records.
How do people actually make money by investing in Life Insurance?
Ummm! Most asked question is How much should I invest and how much will I get back! 😛
My answer, it depends over to the Situation!
Fine, I am hoping now you know the secret of the Life Insurance 🙂 Another Question strikes your mind that How Life Insurance Companies make money by giving their customers this much of risks, claims, and money back assurance?
Okay, Life Insurance is business, Yeah an ultimate big business of making money 😛 (Now, You are thinking to start a company 😛 )
I’ll explain their profit part in just 2 simple steps: (Ladies and Gentlemen’s, PAY ATTENTION Please 🙂 )
#1: Person like me and you want our life insurance premium, let us say for 30 years (Assumptions). Making the process easier to understand, I and you going to buy an insurance premium policy worth of 100$ for 30 years.
So what generally these insurance companies do is, They create a pool of peoples depending on Age, Behaviour, and other factors and in that pool let us take they have added almost 500 other peoples including me and you Okay?
Let’s do some calculation.
100$/person Okay? We have 500 peoples. So the total amount would be 500 X 100$=50000$
#2: Okay, So finally the Insurance company have a lump-sum amount of 50,000$. Now what these companies do is, They will invest this money to some other big hoardings and make another level of profit.
Best life insurance companies are
1. AEGON Life Insurance.
2. Bajaj Allianz Life Insurance.
3. Birla Sun Life Insurance.
4. HDFC Standard Life Insurance
5. ICICI Prudential Life Insurance
These are some of the leading life insurance companies from where you can get your life insurance policy and expect minimum difficult fit the beneficiaries to settle a death benefit claim.
How Does Term Insurance Works? (Video)
Conclusion: How Does Life Insurance Works? Make Money?
Car Insurance protects your car, Home Insurance Protects you Home, Education Insurance protects your future, same as Life Insurance protects YOU from all the things that we had discussed above!
This is all you need to know about life insurance policies and how life insurance works in 2019. You can find almost all the details above, before applying for one. However, if we have missed out on any such useful information about life insurance policies, then please let us know about it in the comments section below.