As a responsible individual, it is important to secure the future of your loved ones even when you are no longer around. One of the best ways to do this is by getting life insurance coverage. However, before getting into the depths of different types of life insurance policies, it is essential to understand the concept of life insurance as a contract of indemnity.
Life insurance is a contract between an insurer and an insured person. In this agreement, the insurer agrees to pay a designated sum of money to the nominated beneficiaries or the estate of the policyholder upon the occurrence of the insured person`s death. The insured person, on the other hand, agrees to pay a premium to the insurer for the coverage.
The term indemnity means to compensate for a loss or damage. Therefore, a life insurance contract of indemnity means that the insurance company agrees to compensate the beneficiary for the financial loss incurred due to the death of the insured person.
In other words, the insurer is obliged to pay the nominee the exact amount mentioned in the policy, as long as the death of the policyholder occurs during the policy term. The policy term is the duration for which the policyholder has paid the premium. If the insured person passes away after the policy term, the insurance company is not bound to pay any sum to the nominees.
It is important to note that life insurance is not a contract of speculation or a way to earn money. The primary objective of life insurance is to provide financial protection to the beneficiaries in the event of the policyholder`s death. Therefore, the amount of coverage should be based on the insured person`s income, debts, and future expenses.
Moreover, the policyholder must disclose all relevant information regarding their health, lifestyle, and habits to the insurer. Failure to provide full disclosure may result in the cancellation of the policy or the insurer refusing to pay the sum assured in the event of the policyholder`s death.
In conclusion, a life insurance contract of indemnity is a legal agreement between the insurance company and the policyholder. Under this contract, the insurance company is responsible for compensating the beneficiaries for the financial loss incurred due to the policyholder`s death during the policy term. It is essential to have a life insurance policy that provides adequate coverage to ensure the financial security of your loved ones in case of an unfortunate event.