How Does Life Insurance Differ From Other Insurance?
Life insurance is a common type of insurance that people buy in order to insure their families and survivors in the event of their death. People can either buy life insurance for themselves or for other members of their family. Upon death, the policy pays out a designated amount of money based on the type of insurance and how long the insurance has been held. There are different forms of life insurance, and although they resemble other common types of insurance in several ways, they are also differentiated by several factors.
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Beneficiaries
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Most types of insurance are designed to protect the policyholder against events that occur and pass by, leaving damages or bills that need to be paid. Life insurance, however, is designed to protect beneficiaries, not the person the policy is taken out for. It pays for costs associated with death, debts and funerals. Life insurance is unique in this benefit toward beneficiaries that occurs only after death, rather than the benefit of the person or business taking out the insurance policy.
Terms
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Most insurance policies have specific terms such as deductible requirements before the policy will begin paying for expenses. Life insurance does not have deductibles -- it simply offers a certain amount of money at the death of a person, depending on the type of policy. This is a sharp deviation from the typical language of policies, which deal with how high the deductibles are, how much the policy will cover in certain circumstances and what the deductible limits are for a specific year and the lifetime of the policy.
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Term Life Insurance
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There are two different types of life insurance: term and whole. Term life insurance tends to have low premiums, lower than most types of insurance, but only applies for a certain of years, often between one and 30. The premiums for this policy vary according to the age of the policyholder when the application for life insurance is made, although it does not necessarily change through the length of the policy. This is at odds with other types of insurance, which are updated from year to year with different premiums based on the risk associated with specific events.
Whole Life Insurance
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Whole life insurance is another type of life insurance that does not have specific time limits -- the holder pays the policy until death. Whole life insurance is often associated with some type of investment. Many of these policies allow people to put a certain amount of their insurance payments in an investment account to grow the funds at a rate of return until it is claimed upon death or at the end of the policy. This is not an attribute associated with other types of insurance, although it is rarely considered a lucrative investment opportunity due to the low rates offered by insurers.
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