| Insurance involves transferring a risk that you bare, | | | | the system was not designed to cope with this kind of |
| onto an insurance company, so that you no longer | | | | speculation. Therefore the rule developed that you |
| have to worry about the event occurring. While you | | | | could only insure the life of someone you had a real |
| pay a fee, or premium for this, what you get in return | | | | interest in surviving. There is also the public policy issue |
| is peace of mind. So what is the risk that you are | | | | that it would be tempting to some people to insure |
| transferring with life insurance? Well, quite simply, it is | | | | strangers and then make sure they died soon. |
| the financial risk of your own death. It should also be | | | | The insurance policy will have two important details |
| remembered that it is in certain circumstances possible | | | | defined right at the outset. The first is who is to be |
| to insure the life of another person, such as your | | | | paid out under the policy. While this seems obvious, it is |
| husband or wife, or an important employee. The | | | | important to think carefully about it as, unlike in most |
| insurance company will then pay out to the named | | | | insurance contracts, the purchaser of the policy is |
| beneficiary once the event occurs, and this is usually a | | | | rarely the beneficiary under a life insurance policy. |
| family member or business associate of the insured. | | | | The second is the amount to be paid out on to |
| The thing that insurance companies will be looking for | | | | occurrence of the event. It must be remembered that |
| is insurable interest. It may come as a surprise but in | | | | this is also subject to the rule of insurable interest and |
| the early days of aviation, there were some clever | | | | therefore you cannot have a policy on your life for |
| entrepreneurs who would hang around at airports and | | | | more than your life is reasonably financially worth. |
| buy life insurance policies on the passengers. Since | | | | Since the premium is partially calculated on the amount |
| plane crashes were very common, a good proportion | | | | of the payout, you will simply be paying for more |
| of the insured passengers died and the insurance | | | | insurance than you can receive. Therefore be honest |
| companies were faced with the prospect of paying | | | | with how much you earn and how much support your |
| out vast sums to these men. | | | | providing to your family so that the premium will be |
| This is not the reason insurance was developed and | | | | accurately assessed. |