APPLICATION BASICS OF LIFE INSURANCE

As a rule of thumb, when you apply for life insurance you want to be covered for 8 to 10 times your annual salary. (There may also be other considerations of what amount you want if you are in a business situation or if you are using life insurance for a specialized need such as mortgage payoff in case of untimely death). So, if you earn $50,000 a year, you want to have a death benefit of $400,000 to $500,000. This is to allow for your beneficiary to be able to pay off all your debts and still have money left over to invest into an account and use as income.
Beneficiaries need to be chosen with some care, because your choice is investigated by the underwriters when your application is turned in. Technically you can name anyone you want, but a "strange" naming such as a very distant cousin may get your policy denied due to suspicions about your motives. If you are married you should name your spouse and/or your children, though you do not have to; but once again, if you don't that fact may be viewed with suspicion, although if you can justify it to the agent and underwriters you'll get the policy. You can change your named beneficiary(s) at any time while the policy is in force.
Most life insurance policies will not pay out if you commit suicide or are murdered by a named beneficiary within the first two years of having the policy and there will be a written clause stating such in your policy. Also, if a death benefit claim is made and it turns out you as policy holder lied on your application (such as you said you don't smoke but autopsy proves you did), life insurance companies won't pay out.
When you apply for life insurance you must be prepared to answer some sensitive personal questions about financial matters and health matters. The agents are trained as objective-minded professionals and there are strict industry regulations about confidentiality.
Some people prefer applying for life insurance over the Internet. This can be a good idea if you know what you're doing, but the usual person would benefit from meeting in person with agents representing different life insurance companies or meeting with an insurance broker or financial planner to be advised on the best options.

Different types of life cover

Life insurance (also known as ‘life assurance’ or ‘term assurance’) is a policy that pays out a lump sum in the event of the policyholder’s death, with the purpose of protecting loved ones and dependents against financial hardship.
Life insurance is usually available on a single or joint life basis with benefits including paying out on the diagnosis of a terminal illness. If the policyholder is alive when the policy expires no payment is made and, should the policyholder stops paying premiums at any stage, the policy has no value.
There are several types of life insurance:

• Level term insurance - designed to pay out a sum of money if the policyholder should die during the policy’s term. The sum assured is guaranteed and remains unchanged throughout the term.
• Decreasing term life insurance i.e. mortgage protection cover – where the sum decreases during the policy. It is regularly used to protect capital and interest repayments on a mortgage.
• Renewable term insurance – On the expiry date there is an option to continue without a health review.
• Convertible term insurance – Level term insurance with the option to revert to whole life or endowment insurance.
• Increasing term insurance – Due to inflation the value of money declines each year. Consequently, this form of insurance combats that with an escalating sum assured.
• Index linked term insurance – Some insurers provide the option for the premium to be increased each year in relation to the Retail Price Index.

Concept of life insurance

The concept of life insurance (also known as ‘life assurance’ or ‘term assurance’) is often difficult to comprehend. Nobody wants to think about death, but the reality is that our loved ones will need support after we have passed on. That’s why moneysupermarket.com has produced an exclusive guide to help you make an educated choice on the type of cover you need.

Why do I need life insurance?

Coming to terms with the loss of a loved one is never an easy thing to do and adding financial burden to the grief can make coping increasingly difficult. It can help to support your family after you die, or even a business partner.
Among the reasons to take out life insurance could include:

• Mortgage repayments – do you wish to arrange for your mortgage to be paid off?
• Replacing the primary earner’s salary – ensuring the family does not fall on hard times after your death.
• Replacing childcare – the death of the primary childcare provider could lead to the need for childcare expenses.
• Education expenses – cover for school/university fees after the death of the primary earner.

Whether it’s about leaving your debts behind or ensuring your family can maintain the standard of living to which they were accustomed, it’s clear there are plenty of reasons to look for the best life insurance policy for your personal circumstances. Getting the best quote is an important part of finding the right policy.

Based Types of Insurance

The main type of insurance policies aviable in market are :

1. Life Insurance
2. Property Insurance
3. Health Insurance
4. Auto Insurance
5. Travel Insurance
6. Insurance at amusement Points
7. Credit insurance
8. Disability Insurance

How Insurance Works

Over the years, the rationale behind purchase of an insurance product has evolved a lot. And still, many a times policyholders keep figuring out what is insurance, how it works, why an insurance company does not return the premium if the insured does not die in case of term insurance, etc. Insurance is a typical arrangement where 'many' individuals come together to cover the losses of a 'few'. Let's say there are 200 members in a group of individuals working together. This group predicts that each year, 4 persons will die from it. The economic losses that the families of these 4 members will face after their death will be $ 50,000 each. However, no one knows who will be those 4 individuals who will die. Hence, in order to safeguard the financial interest of their families, each member contributes $1000 towards a common pool created by these members. The pool will then have $2,00,000. If in case of death of those 4 members, this pool will used to distribute money among the families of those 4 members. So, if we look at in other terms, each member safeguards his/her family members' financial interest of $50,000 by paying $1000.

And in actual terms also, this is how insurance works. More the amount of money the members contributes, higher will be the amount his/her family will get in case of his death. This concept is a true portrayal of a term insurance product and this is why insurers never refund the premium in case of a pure term insurance product in case the member survives throughout the term of the policy. In case of traditional products, insurance companies increase the amount of this minimum contribution so that each member gets some amount if in case he/she does not die.

Concept of Insurance

Insurance is a method of managing risk, both on the part of the insured agent and the insuring agent. The insured passes their risk onto the insurer. In exchange for taking on the risk, the insurer demands payment from the insured.

An insurer will choose its premiums based on the risk of an event, in combination with its cost. As an example, if the risk of an event occurring is 1 in 1,000 every day, and the cost of the event is $1,000, than the insurer could expect to break even if they charged a premium of $1 a day. Since the insurer is in the business of earning a profit, they will tend to charge as much more than this as the market is willing to spend.

The insured will choose to interact with an insurer because they perceive the risks and potential losses to be too great. Using the example above, an individual could potentially try to "insure" themselves by saving $1 a day rather than paying a premium to an insurance company. However, after a period of 500 days, the individual would have a 1 in 2 chance of having already experienced the event. This would mean that 50 percent of the time they would have saved $500 and not experienced the event. The process of insurance is obviously quite a bit more complicated than this, of course. Generally speaking, an insurer will use the law of large numbers in order to determine what its likely losses are. At the same time, they will tend to assess the individual risk of each applicant separately, which can be somewhat difficult.

History of insurance

Early methods of transferring or distributing risk were practiced by Chinese and Babylonian traders as long ago as the 3rd and 2nd millennia BCE respectively. Chinese merchants traveling treacherous river rapids would redistribute their wares across many vessels to limit the loss due to any single capsizing. The Babylonians developed a system which was recorded in the famous Code of Hammurabi, c. 1750 BC, and practiced by early Mediterranean sailing merchants. If a merchant received a loan to fund his shipment, he would pay the lender an additional sum in exchange for the lender's guarantee to cancel the loan should the shipment be stolen.

Achaemenian monarchs were the first to insure their people and made it official by registering the insuring process in governmental notary offices. The most important gift was presented during a special ceremony and when a gift was worth more than 10,000 Derrik (Achaemenian gold coin weighing 8.35-8.42) the issue was registered in a special office. This was advantageous to those presented such special gifts. For others, the presents were fairly assessed by the confidants of the court. Then the assessment was registered in special offices.

The aim of registering was that whenever the one who presented the gift registered by the court was in trouble, the monarch and the court would help him or her. Merchants whose goods were being shipped together would pay a proportionally divided premium which would be used to reimburse any merchant whose goods were jettisoned during storm or sinkage.

The Greeks and Romans introduced the origins of health and life insurance c. 600 AD when they organized guilds called "benevolent societies" which acted to care for the families and funeral expenses of members upon death. The Talmud deals with several aspects of insuring goods. Separate insurance contracts (i.e. insurance policies not bundled with loans or other kinds of contracts) were invented in Genoa in the 14th century, as were insurance pools backed by pledges of landed estates. These new insurance contracts allowed insurance to be separated from investment, a separation of roles that first proved useful in marine insurance. Insurance became far more sophisticated in post-Renaissance Europe, and specialized varieties developed.
In the late 1680s, Mr. Edward Lloyd opened a coffee house which became a popular haunt of ship owners, merchants, and ships’ captains, and thereby a reliable source of the latest shipping news. It became the meeting place for parties wishing to insure cargoes and ships, and those willing to underwrite such ventures. Today, Lloyd's of London remains the leading market for marine and other specialist types of insurance, but it works rather differently than the more familiar kinds of insurance.

Insurance as we know it today can be traced to the Great Fire of London, which in 1666 devoured 13,200 houses. In the aftermath of this disaster Nicholas Barbon opened an office to insure buildings. In 1680 he established England's first fire insurance company, "The Fire Office," to insure brick and frame homes.
The first insurance company in the United States provided fire insurance and was formed in Charles Town (modern-day Charleston), South Carolina, in 1732.

Benjamin Franklin helped to popularize and make standard the practice of insurance, particularly against fire in the form of perpetual insurance. In 1752, he founded the Philadelphia Contributionship for the Insurance of Houses from Loss by Fire. Franklin's company was the first to make contributions toward fire prevention. In the United States, regulation of the insurance industry is highly Balkanized, with primary responsibility assumed by individual State insurance departments. Whereas insurance markets have become centralized nationally and internationally, state insurance commissioners operate individually, though at times in concert through a national insurance commissioner's organization. In the State of New York, which has unique laws in keeping with its stature as a global business center, Attorney General Eliot Spitzer has been in a unique position to grapple with major national insurance brokerages. Spitzer alleged that Marsh & McLennan steered business to insurance carriers based on the amount of contingent commissions that could be extracted from carriers, rather than basing decisions on whether carriers had the best deals for clients. Several of the largest commercial insurance brokerages have since stopped accepting contingent commissions and have adopted new business models.