Life insurance or
life assurance is a contract between the policy owner and the
insurer, where the insurer agrees to pay a sum of money upon the
occurrence of the insured individual's or individuals' death or other
event, such as terminal illness or critical illness.
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In
return, the policy owner agrees to pay a stipulated amount called a
premium at regular intervals or in lump sums. There may be designs in
some countries where bills and death expenses plus catering for after
funeral expenses should be included in Policy Premium. In the United
States, the predominant form simply specifies a lump sum to be paid
on the insured's demise.
As with
most insurance policies, life insurance is a contract between the
insurer and the policy
owner whereby
a benefit is paid to the designated beneficiaries if an insured
event occurs
which is covered by the policy.
The
value for the policyholder is derived, not from an actual claim
event, rather it is the value derived from the 'peace of mind'
experienced by the policyholder, due to the negating of adverse
financial consequences caused by the death of the Life Assured.
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To be a
life policy the insured
event
must be based upon the lives of the people named in the policy.
There is
a difference between the insured and the policy owner (policy
holder), although the owner and the insured are often the same
person. For example, if Joe buys a policy on his own life, he is both
the owner and the insured. But if Jane, his wife, buys a policy on
Joe's life, she is the owner and he is the insured. The policy owner
is the guarantee and he or she will be the person who will pay for
the policy. The insured is a participant in the contract, but not
necessarily a party to it.
The
beneficiary receives policy proceeds upon the insured's death. The
owner designates the beneficiary, but the beneficiary is not a party
to the policy. The owner can change the beneficiary unless the policy
has an irrevocable beneficiary designation. With an irrevocable
beneficiary, that beneficiary must agree to any beneficiary changes,
policy assignments, or cash value borrowing.
In cases
where the policy owner is not the insured (also referred to as the
celui
qui vit or
CQV), insurance companies have sought to limit policy purchases to
those with an "insurable interest" in the CQV. For life
insurance policies, close family members and business partners will
usually be found to have an insurable interest. The "insurable
interest" requirement usually demonstrates that the purchaser
will actually suffer some kind of loss if the CQV dies. Such a
requirement prevents people from benefiting from the purchase of
purely speculative policies on people they expect to die. With no
insurable interest requirement, the risk that a purchaser would
murder the CQV for insurance proceeds would be great. In at least one
case, an insurance company which sold a policy to a purchaser with no
insurable interest (who later murdered the CQV for the proceeds), was
found liable in court for contributing to the wrongful death
of the victim
(Liberty National Life v. Weldon, 267 Ala.171 (1957)).
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