Life insurance and other types of personal insurance
[social_share]Life insurance is often seen as a type of insurance like any other, but it has some significant differences from other types of personal insurance such as car and home insurance.
One of the biggest differences between life insurance and other types of personal insurance is that the policy holder is not usually the beneficiary, as the policy holder is often the person whose life is insured. With car insurance, for example, it’s very rare for the person who pays the premiums, the person named as the insured, and the person who receives the payout to be different people, although if there is an issue of liability then this can be slightly different.
With life insurance, however, the beneficiary is usually different. This means that the beneficiary’s designation can be changed to another person partway through the insurance policy’s term. It also means that a purchaser can take out life insurance for another person; one example of this is key man insurance, where a business purchases life insurance for a key employee. The employer pays the insurance premium and at the same time also collects any payout. It’s sometimes the case that the employee and their family are unaware the insurance was ever taken out.
Another difference between life insurance and other types of personal insurance is the term. Life insurance tends to be taken out for a longer term than most other types of insurance. Home insurance and car insurance are usually purchased on an annual basis, because the factors behind the insurance tend to be changeable. For example, it’s difficult to predict over five years whether a person will have a crash or still own the same home. For this reason, the providers of car and home insurance are usually not willing to write a policy for above a year. However, life insurance providers have access to very detailed statistical information and they use this information to estimate the life insurance over a longer period.
The long-term nature of life insurance also makes late-term policies tradable, as the life insurance premiums are usually set over the entire term despite the fact that the chance of dying rises considerably during that time frame. These policies have value on the open market and can be sold through a broker, unlike car and home insurance policies.
