Life insurance (also marketed as life assurance) is usually a contract where the insurer promises to pay money to a beneficiary when the insured person dies. The insurer is normally an insurance company. Life insurances can either be purchased by paying a lump sum, or by making regular premium payments throughout the life of the insurance policy.

The reasons for obtaining life insurances varies. A family can for instance decide to take out a life insurances on the main breadwinner, to ensure that the family receives money if the breadwinner dies. Life insurance can also be used as form of investment.

A life insurance policy will normally come with quite a lot of fine print regarding situations where the life insurance will not pay out even though the insured person has died. Common exclusions are suicide, capital punishment, war, riot, and death brought on by risky activities such as rock climbing or parachuting.

life-insuranceAccidental death insurance

Accidental death insurance is a type of life insurance that only pays out if the insured person dies because of an accident. Just as for other types of life insurance, this policy tend to come with several exceptions, e.g. wont pay out if the insured person dies from an accident during a risky activity such as base jumping.

A popular combination insurance is the AD & D. This is an insurance policy that covers accidental death and accidental dismemberment. This means that the policy will cover not just death, but also serious injury (typically injury that causes loss of a limb or loss of an important bodily function).

For accidental death insurance (and AD & D), the premiums tend to be significantly lower than for a more comprehensive life insurance policy that also covers death due to illness etc.

Term life insurance vs Permanent life insurance

Term life insurance is a life insurance policy that will cover the insured for a predetermined amount of time, e.g. 10 years. Some insurance companies will offer policies for 1 year or even shorter. It is also possible to get this type of life insurance for really long periods of time, e.g. 35 years.

Permanent life insurance remains active until the death of the insured person, provided that premium payments are made on time. In many jurisdictions, the insurance company is not allowed to cancel a permanent insurance policy unless it is due to fraud. The permanent life insurance is usually constructed in a way that makes it accumulate cash value over time. For some policies, the owner of the insurance policy can elect to cancel the policy prematurely and receive the accumulated cash (surrender value). Some polices will even allow small withdrawals to be made, without canceling the policy. Another solution is to borrow money with the policy as collateral.

Mortgage life insurance

Mortgage life insurance is an insurance policy that will pay off a certain mortgage if the insured person dies. This type of life insurance is popular with families that want to make sure that the family can stay in the family home even if one of the adults die.