Life Insurance Policy
A life insurance policy is probably the most well-known form of insurance, the most widely held, the most well-developed and the most flexible form of insurance. The history of life insurance dates back to the ancient Greek and Roman Empires around 600 BC although the concept of insurance dates as far back to the Babylonian Empire around 1750 BC. The modern form of life insurance developed in the US around the 1760s and today, as much 60% of Americans own a life insurance policy compared to about 30% of Britons and a global average of about 4%. The global life insurance market was worth about $2.7 trillion in 2017 compared to non-life insurance that was worth about $2.2 trillion in the same year. A life insurance policy is a contract between a policyholder and an insurer, in which the insurer guarantees a policyholder that if they pay the agreed premiums when they are due, then, insurer will pay out a defined amount to a designated beneficiary upon the policyholder’s death [death benefit]. The purpose of life insurance is to provide peace of mind to the policyholder through an assurance that in the event of their death, their family or the persons that they care most about will inherit a sum of money that leave them in a good financial position. As such possession of a life insurance policy is not only a recognition of mortality but also provision for loved ones from the other side. In addition to its primary use as an inheritance, a life insurance policy also has other uses such as:
- Covering final costs such as: medical bills, estate administration costs and funeral expenses of the policyholder.
- Paying off mortgages, college debts and other debts.
- Replacing the deceased policyholder’s income.
- Off-setting estate taxes of the deceased policyholder’s estate.
- Donations to causes of importance to the deceased policyholder or their beneficiaries.
- To pay for business partners shares. In this case, life insurance policies are taken out against each partner in the business by mutual agreement so that in the event of the death of either of the partners, the surviving partners can make a claim and use the proceeds to pay for the deceased partners shares.