Life insurance is a contract between the insurer and the insured where the insurer agrees to pay a previously decided lump sum to the insured person’s beneficiaries upon his death. The insured person agrees to pay some money called the premium at regular intervals for a stipulated period according to the insurance policy.

This policy generally covers death by accident or physical disability due to some trauma. Earlier it excluded death by suicide but now, after many examples and cases, even death by suicide warrants the payment of the insurance money when the person dies, and unless it can be proved that he committed suicide just to give his heirs the money. Hence a suicide after two years of buying the life insurance is considered as death like any other.

Generally people insure their lives for a large sum of money for a stipulated number of years so that their dependents get it after their death if it happens during this period. However, more the amount more will be the premium which has to be paid by the insured person. In some cases the insurance money also covers the funeral costs. In the US the insured person’s heirs get a lump sum after his death.

Generally the insured person and the policy holder are the same person but in some cases they may be different. If a husband buys the insurance policy for his wife, she is the insured person while he is the insurer who pays the premiums regularly. While buying the life insurance policy, the insured person has to specify the beneficiary who can be changed whenever he wants. Thus the beneficiary can be a family member or even a friend or a relative. The face value of the insurance policy is the amount the beneficiary gets when the insured person dies within the stipulated period or when the policy matures. Sometimes the policy may have a hundred year period.

The premiums which the insuring companies get from their clients are invested so that they can pay the claims and finance their operations. The premiums increase with age as more people die when they grow older. Life Insurance companies ask a lot of questions before the policy are signed. Questions regarding lifestyles (whether smoker or non smoker) health (long term illnesses and others have to be declared by the insurer) are asked and only when everything is satisfactory is the policy signed.

In the US Life Insurance Companies consult the Medical Information Bureau which has information on people who have applied for life insurances. The insurer also has permission to get information from the proposed insurer’s doctors.