Life insurance policy and life insurance are two of the basic terms you often come across when talking about insurance. Imperatively, the meaning and Types of life insurance policy is needed in order to have a full grasp of what this type of insurance entails and the benefits it offers to prospective policyholders.
In this article, we’ll delve into what is life insurance, the types of life insurance policy and some common terms used in life insurance policy. With these information, you will have an in-depth of this type of insurance.
Also Read: Insurance companies in South Africa
What Is Life Insurance? Meaning
Life insurance policy is literally a contractual agreement entered into between a policyholder and an insurance company.
While the insurance company is the insurer who promises to pay an appointed beneficiary a particular sum of money, upon the death of the policyholder, the policyholder on the other hand, is the person who pays a premium in exchange for this service.
Life insurance policy is considered very imperative, most especially for those who tend to get their families financially secured after their debt. Life insurance literally, ease the family of the dead of any financial struggle.
After considering what life insurance policy really means, let us also have a sneek peek on the types of life insurance policy that are available to potential policyholders.
Life Insurance Policy Types
Technically, the life insurance policies in Nigeria tend to come in different forms. This actually depends on the preferences and interests of the policyholders.
For instance, most Insurance companies like Allianz Nigeria Insurance who have their license from the National Insurance Commission to sell life insurance policies offer several quality life insurance products.
Also Read: Banks That Offer Insurance policies in 2023
Basically, these different types of life insurance products are offered in order to meet the potential policyholders’ specific needs and preferences.
The life insurance policy types in Nigeria are:
1. Single-Premium
Technically, this type of life insurance cover enables the policyholder to pay his policy premium in advance. Ass result, you are only allowed to pay the premium once for the entire duration of the policy.
This is quite a good offer for those who are able to pay the premium at once. But for those who can’t, they can consider the other life insurance policy types below.
2. Term Life
The term life insurance is also alife cover that is intended to only last for an agreed number of years. As a policyholder, you are allowed to choose the term or duration you want the policy to run for before the expiration.
As for this type of life insurance policy, the insurer only pays in the event of the policyholder’s death. Interestingly, It is usually for a long duration, mostly, 10, 15, 20, or 30 years.
Level Term
Another life insurance policy types to consider is the level term. As for this type, the premium payable by the policyholder is the same throughout the policy.
3. Whole Life
Another interesting type of insurance policy is the whole life which is basically more like an investment plus life cover. This type of insurance cover is a type of permanent life insurance policy that yields cash value. It is often a combination of investment and life cover.
4. Burial Expenses
A type of life insurance cover that has a small death benefit in burial expenses. Hence, the deceased family are relieved of any financial difficulty in arranging burial ceremonies, and any other financial obligations attached.
5. Group Life Insurance
A life insurance policy types for a group of people is the Group life insurance. This life insurance policy is what an employer takes for the benefits of the staff.
It offers a low premium and the sum assured is usually X3 of the employee’s annual compensation.
Basically, this type of insurance is made compulsory in Nigeria.
6. Keyman Insurance
The last of the life insurance policy on our list is the Keyman Insurance. As for this life cover, a business usually buys this type of insurance on behalf of a third party who is very important to the operation of a business.
This person could be the CEO or an expatriate from overseas.
Common Life Insurance Policy Terms
1. Premium
The incessant mentions of premium in this article has shown the importance of the phrase and the need to know what it actually means, especially when related to life insurance policy.
An insurance premium is a payment made by the policyholder to the insurer in exchange for a life insurance policy. This is calculated by insurance underwriters who factors the policyholder’s gender, age, medical history, occupation, and high-risk habits.
Noteworthy, all these mentioned components are used to compute the insured’s risk profiling. The impact of this risk assessment is basically, the higher your risk, the higher the premium. Also, a portion of the premium goes to the insurance company’s operating expenses.
2. Sum Assured
This is hardly mentioned, but let’s dive into the meaning of sum assured in relation to life insurance policy or covers.
It is the total sum of money the insurance company guarantees, in the event of the insured’s death. The insurance company gets to determine if there is an insurable interest in the beneficiary.
They also get to determine if the prospective policyholder can or qualifies for the coverage based on the company’s underwriting requirements.
3. Cash Value
When taking out a life insurance cover, e.g. Whole life policy, a portion is saved into the policyholder’s account. The other part is used to purchase life cover. The cash value of a life insurance policy can be any of the following;
It is a savings account that the insured can use during the term of the policy without surrendering the policy. For example, the policyholder might request for a loan against the policy’s cash value and pay interest on the loan.
In the event of termination, the gross amount payable to the insured is usually the cash value on the policy and not the total premium paid.
Conclusion
It is quite important to note that despite the fact that policyholder and the insured are often considered as the same people, they tend to differ sometimes. a business might buy an insurance policy on behalf of a crucial employee, such as a Managing Director. It makes the company the policyholder and the managing director, the insured.
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