How does life insurance work?

Ask: How does life insurance work?
Answer:
Life insurance provides people with a way to provide for their families in the event of their untimely death. By purchasing life insurance, a person can provide enough funds to pay for the funeral and other expenses, depending upon the amount of life insurance purchased. Here's how it works:

After the insurance company receives your application for life insurance, the insurance agent reviews variables that affect how long you are likely to live. A person called an actuary runs a statistical analysis to determine how long you are likely to live, based upon your age, your current health and other factors, such as whether or not you smoke cigarettes. The insurance agent takes into account the actuary's statistical analysis to determine whether you are a good "risk" to insure.

The insurance agent calculates an insurance premium based upon how long you are statistically likely to live. The older you are, the higher your life insurance premium is likely to be. Your insurance premium is also likely to be higher if you have health issues, such as high cholesterol or high blood pressure, or if you smoke cigarettes. If the insurance agent believes you to be a poor risk, then he might decline to offer you life insurance coverage altogether.

If the insurance company chooses to offer you life insurance, then the insurance agent will deliver a life insurance contract to you. The contract specifies the amount of coverage you have (how much money will be paid if you die), the term of the life insurance (how long the contract will last) and how much money you must pay in premiums (the cost of buying the life insurance). The insurance company tries to charge enough in premiums so that the amount of money that their insureds (the people who buy life insurance from the insurance company) pay collectively will cover the cost of paying out on some of the life insurance policies.

You will need to sign the life insurance contract and pay your first premium payment in order to be covered by the life insurance. You will also need to name a beneficiary for your life insurance in the event of your death. Your beneficiary is the person who will receive a check if you pass away during the term of your life insurance policy.

As long as you pay your premiums during the term of your life insurance policy, then your named beneficiary will receive payment if you pass away during the term of your insurance policy. Most insurance policies do have exclusions from coverage, such as no payment for death by suicide, so be sure to read over the exclusions in your life insurance policy.