The Scientific Principles of Life Insurance
Everyone desires a safe future for their loved ones and their aspirations. With this thought, the first insurance company was founded in London in the eighteenth century. As two centuries have passed and the insurance business has expanded with many companies providing various life insurance services today, acquiring life insurance is easier than ever. In this discourse today, we will learn what essentially Life Insurance means and its scientific principles.
Life Insurance - Explained
As mentioned on Insuranks, Life Insurance is basically a contract signed between two parties. The policyholder and the insurance company are the two stakeholders in the agreement. Considering the contract, it entails regular payments or a lump sum of premium by the policyholder to the insurer or the insurance company. Then, the Insurance company becomes liable in return to make a certain payment to a designated beneficiary related to the policyholder on the death or sometimes terminal illness of the policyholder. Life Insurance can be used to cover the personal loans, tuition fees, etc. of the beneficiary related to the policyholder.
What are the Scientific Principles of Life Insurance?
Certain principles have been devised for the proper functioning of the life insurance contract. When drafting the contract of life insurance, these principles must be in place to ensure coordination, cooperation, and goodwill between the insurance company and the insured (policyholder). The principles of insurance, in particular, Life Insurance are:
The principle of utmost good faith necessitates the transfer of correct information between the insured and the insurer. The accuracy and completeness of the provided information must be up to a premium standard. The insurance company and the policyholder must reveal information under the concept of this principle. The terms and conditions set by the insurer must be stated clearly while the policyholder is also obliged to reveal his or her objects of interest correctly. The clarity of aim from both sides should be ensured because misstatement for faulty emission of essential information may lead to an erroneous decision regarding entering the insurance contract.
This principle entails the singling out of the most prominent cause of a loss depending upon the connection of the contracting party to the cause. The most proximate party would have to pay for the loss.
This principle entails that the policyholder must gain some benefit from the insurance contract that he or she enters.
The principle of subrogation says that then legal rights of a property are held by that party that has paid for it. In other words when the insurance company has paid complete compensation for property the insurance company has the right to take a claim on it.
The principle of contribution states that different insurance companies will cover the loss proportionately over the same property which is written on the provision of the policyholder In all the life insurance agreements or contracts.
Whole Life & Term Life Insurances
The life insurance policy is devised on the basis of the personal preferences of the policyholder. There are two types of life insurance which include whole life insurance and term life insurance. The whole life insurance remains in effect for the entire life of the policyholder. It may be costly as compared to the term life insurance but it entails payment of the fixed amount to the policyholder after his or her passing out.
The cumulative costs of whole life insurance depend on certain factors which are age, fitness, life insurance providing entity, features of the plan, etc. So, the prices may vary on the basis of the policyholders' preferences and choices. Considering the term Life Insurance, it is temporary and is costly as compared to whole life insurance. Whole life insurance entails the providing of a premium by the policyholder to the insurance company throughout his life at certain periods of time.
Life insurance is important and beneficial because it imparts a sense of security and certainty.