Every person has heard about the expressions ‘Life Insurance’ or ‘Life Assurance’ but only some people know how life insurance actually works. There are many life insurance policies, so a common man gets confused about these policies, as he does not know which one will meet his requirement. He may choose a wrong policy on account of this confusion and thus end up paying a higher life insurance rate but with low benefits. There are many duping agents who take advantage of the ignorant people. Unless people know the details of the life insurance schemes, they will not know on how to select a correct insurance policy.

Life insurance is classified into:

1. Term Life Insurance
2. Permanent Life Insurance [which has the following sub types]
-Whole life insurance
-Universal life insurance
-Variable life insurance.

Term life insurance is for short duration and permanent life insurance is for full duration of insured’s life. Term life insurance cost can change but it is less than the cost of permanent life insurance.

An actuary will use simple mathematical formulas to identify premium for you. People who have the habits of smoking, taking drugs or ones who eat junk food are likely to die early in their life. Hence such people might pay more towards insurance premium than the others. Besides lifestyle questions, there are other questions and compulsory medical tests one has to take up to determine premiums. 

If the medical test give good results, you’re certainly offered a policy and premiums are confirmed based on certain risk factors. The risk factors relate to life style, occupation, sex and race. In case you dislike undergoing medical test for your best reasons, you can opt for life insurance no exam policy. Here you give all details about health factor. No need to undergo medical tests. If the insurance company is satisfied you can get this type of policy but with high premium rate.

What are the points that an insurer has to see, when requiring a policy. The first point is how much amount the beneficiary should get on his death. The amount so got, is to wipe out debts like mortgage. So, it is necessary to calculate roughly the future death date figure. So, the insurance coverage should be atleast 8-10 times of your current salary. You should be sure about your nominee’s legal right because if the company suspects about this aspect, your application might get rejected. 

Remember you must be completely honest about your lifestyle in your application.  Even if you lie and your application is accepted, if the insurance company conducts an enquiry at a later date and finds out that you have lied, they can cancel your life insurance and any premium amounts paid until then will be lost.  The insurance company will ask in depth personal questions that will be kept in strict confidence but which you may feel uncomfortable answering.  However, all this is for your good and will help determine your premium amounts.  Also, the insurance company is not liable to pay the coverage amount if you commit suicide or you are murdered by any of your beneficiaries.

Application process is a step by step process. Primary step is to complete the application form. Next step is medical tests to be taken. Then once the application is received by the insurance, it will be sent for further scrutiny. By adopting statistical analysis, risks involved in the account will be calculated.

Methods such as ‘cost per thousand’ table, the exact premium amount will be calculated. At this juncture insured with great risk will be rejected. Once the policy is granted, the insurance contract will be issued with information about coverage amount, premium amount and with terms and conditions. Take professional help on understanding the contract. After signing on it and returning it, you are now eligible to make payment towards your premium payment and you now have your own policy.