At the heart of it, life insurance is a sophisticated form of risk transfer. A life insurance policy is a legal contract between an insurance company and a policy holder (“the insured”) that calls for the payment of a lump-sum to the designated beneficiaries of the insured in the event of his or her death. In exchange for regular premium payments, an insurance company will assume the risk of covering the financial obligations of the insured for a set period of time and up to certain limits.

Life Insurance Basics

Life insurance is typically chosen based on the needs and objectives of the insured. People use life insurance to provide certainty that their survivors can pay:

• the final expenses or burial costs of the insured
• the education expenses of any surviving children
• the remaining balance on any home mortgage loans
• the costs associated with maintaining a family’s standard of living

Who Needs Life Insurance?

According to Meyers Insurance Ltd., anyone with a family or with others who rely upon them for financial support might need insurance coverage. Candidates for insurance coverage should consider their current circumstances and think about the quality of life they want to leave their survivors.

Types of Life Insurance

There are a few different types of life insurance policies available to consumers and industry. Three of the most common types are:

• term life insurance
• whole life, universal life, and variable life insurance
• group life insurance

Term life insurance is generally cheaper and far less complicated than other types of life insurance. Term life policies pay a fixed death benefit if the insured dies during the term the policy is in effect. Whole life, universal life, and variable life policies can build up cash value over time. These types of insurance policies can be regarded as a combination of insurance coverage and investment asset. Group life insurance is a form of insurance that an employer might purchase as a benefit to attract quality employees.

The first insurance contracts came into existence more than 2,000 years ago and were used to transfer risk between trading partners. Life insurance as we know it dates back to ancient Roman times. Middle class Romans joined “burial clubs” which provided financial assistance for final expenses. Today, life insurance is an industry which serves many millions of families by providing financial assistance to the surviving families of policy holders.