Let’s answer it simply and use a couple examples for clarification. Life insurance is any product that pays a financial benefit for an incident or action in a person’s life. Let‘s use car insurance as an example for clarity.
Car insurance has many different forms. It doesn’t pay a benefit only if you completely destroy a vehicle. There is coverage for theft, fire, vandalism, collision damage, glass damage, rental vehicle replacement, etc, etc. You are starting to get the picture. It is all car insurance, because it pays benefits relative to a car. The cost and benefits of “car” insurance depends on what features you choose.
Another good example is house insurance. Think about it. You can insure against specific incidents; fire, theft, flood, sewer backup, liability, tenants packages, contents, etc, etc. It’s all “house” insurance but there are many facets to it. A financial benefit is paid in the event of an occurrence, relative to a house. Again, it’s all house insurance, but the costs and benefits of a house insurance policy really depends on what features you choose for yourself.
Let’s get back to life insurance and talk about that. There are many different types of “life” insurance that a person can choose to have. People think of life insurance as a product that pays a cash benefit in the event of a person’s death. That is correct and the basis of how it all started. Now however, we have permanent insurance, term insurance, universal life insurance, limited pay life insurance, first to die life insurance, last to die life insurance, etc, and these types all pay a benefit when someone dies.
Insurance has changed. A person can get disability benefits which pay an income should a person be unable to work when they are disabled thru illness or injury. You can get a critical illness plan that will pay a benefit upon a diagnosis of an illness like cancer, or a payment for an incident like a stroke. It all falls under the life insurance umbrella because the benefits are paid relative to a person’s life.
Today, many more products such as travel insurance, long term care, group insurance, health and dental benefits etc. also fall into the life insurance category.
So in summary, life insurance is an insurance program that pays a financial benefit for an incident or event that may occur in a person’s life.
Look for future articles that expand on all of these individual products.
John Kovats, CLU
John Kovats has been in the Life Insurance business for over 25 years.