Life Insurance Definition and Legal Meaning
On this page, you'll find the legal definition and meaning of Life Insurance, written in plain English, along with examples of how it is used.
What is Life Insurance?
Contract between an insured person and an insurance company where the insured pays a regular fee in exchange for the company issuing a determined amount of money to a beneficiary when the policy-holder dies.
History and Meaning of Life Insurance
Life Insurance has been around for centuries, with the idea originally stemming from the creation of marine insurance in ancient Greece. During the 17th century, Amsterdam became the center for insurance, with Lloyd’s of London being established in the 18th century. Life Insurance, as we know it today, started in the mid-18th century, with the first company being established in the US in 1759. It is now a common form of insurance, meant to financially protect loved ones left behind when the policyholder passes away.
Life Insurance can be broadly categorized into two types: term life insurance and whole life insurance. Term life insurance covers the policyholder for a specific number of years while whole life insurance is valid until the policyholder’s death. The premium for a Life Insurance policy may be paid in a lump sum, annually, quarterly or monthly.
Examples of Life Insurance
- John takes out a Life Insurance policy naming his wife as a beneficiary. If John were to unexpectedly pass away, the policy would pay out a predetermined sum of money to John’s wife.
- Maria’s parents take out a whole life insurance policy for their daughter when she’s a child. As Maria grows up, the policy remains in effect and can be used to financially protect her loved ones in the event of her death.
- Tom’s employer offers group life insurance as an employee benefit. Tom decides to enroll in the program, choosing his wife as the beneficiary.
Legal Terms Similar to Life Insurance
- Annuity - contract between an insured person and an insurance company where the insured receives a regular income in exchange for a lump sum of money paid to the company.
- Health Insurance - insurance that covers medical expenses for the policyholder.
- Disability Insurance - insurance that pays out a portion of the policyholder’s income if they become disabled and unable to work.