How Does Life Insurance Work?


Quick Answer

Life insurance works by having the beneficiary, normally the family of the individual who buys life insurance, receive a fixed amount of money in case the insured individual dies within the period determined by the insurance policy. An individual typically pays a premium on a monthly, quarterly or annual basis.

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Full Answer

Driving habits, hobbies, lifestyle and credit history impact the price of insurance premiums and, in some cases, can prevent an individual from buying life insurance. Pre-existing medical conditions, sex and age also determine the final price. Older people who come from families with a history of cancer or heart disease and people who suffer from high blood pressure are the ones who usually pay the highest premiums. People who engage in risky activities, such as skydiving, are also met with higher-than-average rates.

When a person with life insurance dies within the policy term, the beneficiary is required to file an official claim and submit a certified death certificate before being able to collect on the policy. The insurance companies typically pay a lump sum of money to the beneficiary once the claim is settled and approved. Life insurance companies also have the right to deny claims in case the insured individual committed suicide or if the investigation shows that the claim is fraudulent.

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