Life insurance is a blanket term for a variety of insurance policies that cover the life of a person. The insurer has a contractual obligation to pay beneficiaries a sum of money in the event of terminal illness or death. The policyholder is a contractual obligation to pay the insurance premiums at an agreed time. The United States the predominant method of payment is by a lump sum.

Insurance companies and businesses and limit their liability by stating that the insurance policy is void if the death was a suicide, or the death occurred during a civil rights or the policyholder has faked their death.

• Protection life insurance policies

Term life insurance is a protection policy, the insured or their beneficiaries receive a lump sum.

• Investment life insurance policies

The final payout is not just a single lump sum the premiums have been paid for a long time and there is an element of accrued profit.

Actuaries estimate the level of risk in an insurance policy covering life  use statistics and probability factors from this quantum formula they estimate a life  expectancy. For instance if the insured smokes and is a heavy drinker then his life expectancy will be statistically lower than a non-smoking teetotaler.

The variables that are normally calculated gender age and smoking. In the US mortality tables at the base cost of insurance but the price of premiums takes into account family medical history to determine the likelihood of inheriting a genetic disease and personal health.

A short-term insurance policy for life for a healthy non-smoking male age 25 with no history genetic disease may work out and under $100 annually and the insured sum would be about $100,000. As we get older the premiums increase because statistically more likely to die.

The health categories for insurance on Life are

• Preferred Best

Statistically the fittest in the population with no family history of diseases that is likely to shorten their lifespan such as cancer, diabetes, strokes or other life-threatening conditions.

• Preferred

The preferred category has a family history of disease, and they are under medication for this disease that it is controllable.

• Standard category

Standard category is the most usual characteristic is the insured has made lifestyle choices that increase the risk of certain diseases in other words they drink or don’t exercise sufficiently

• Tobacco Smoker

The tobacco category is a high risk category because of the dangers associated with smoking, the insured may not be denied a policy but they will have to pay more for the premiums.

An insurance policy may be temporary or permanent and they fall into the following subdivisions term, universal, whole life and endowment life insurance.

Term life Policies

Term insurance buys protection for your family in the event of your death. There is no element of profit or accumulation of cash. The term of the life insurance policy is stated it may be 10 years or 20 years and at the end of the policy expires. The costs of the premiums are fixed for the whole term of the policy. Consequently both long and short-term life insurance is often used as a “top up” policy as the protection or death benefit is stated when the policy is taken out. The policyholder has ensured his life for a specified term and if he dies within that time the beneficiaries receive a payout. In general should the policyholder die within two years of the policy being taken out the company returns the amount of the premium paid plus a little interest.

Permanent Life Insurance

Permanent insurance policies can be used as collateral to borrow money because they cannot be canceled until the person dies. There are four types of permanent insurance, whole life insurance, universal life, limited pay and endowment.

Whole life insurance

Whole life insurance provides a policy guaranteed death benefits and fixed annual premiums. The disadvantages of whole life are the dividends cannot be guaranteed, it depends on the state of the investment market. The type of insurance is a lot more expensive than short term life insurance but it may not return a competitive rate when compared with other investment opportunities.

Universal life coverage

Universal life coverage is a fairly new concept it introduces flexibility to life assurance and offers a more competitive investment. There are several death benefit options and they can earn more interest because the interest fluctuates within the government interest rates.

Universal life coverage is a more expensive form of life insurance because each year the costs increase it is designed to have the cash value at maturity as though the mortality rate is between 95 and 100 depending on the insurance company. The second option offers an increasing death benefit every year the policy is active downside of this type of policy is that the price of the life insurance premium increases each year and it is much more expensive as you age.

Accidental Death insurance policies are available but they normally cover death as a result of accidents such as being run over, rather than health problems. Because of the limited cover they are much less the expensive than other forms of insurance on life, and they are normally used as a top up policy. However accidental death policies rarely payout to benefit because most people do not die an accidental death or the policy precludes the type of accident that caused the death. Dangerous activities such as flying, skydiving, mountaineering and parachuting are usually excluded.