Basic life insurance concepts

Life Insurance:

Insurance is a risk management strategy which helps an individual to get compensated for this loss with the premium he pays on.

Insurance industry never encourages any sort of financial gain from insurance policies, claims are thouroughly processed and if any sort of financial gain motive is found out then those policies are voidable by insurance companies. Only the premium paid would be refunded and no benefits would be paid out.

Risk which are insurable must have the following characteristics:

a) lossb) no loss

This type of risk is called pure risk and only this type of risk is insurable.

Speculative risk also adds gain to its characteristics and it is not accepted by insurance companies.

Basically, life insurance policies are of two types:

a) Valued contract 
b) Contract of Indeminity

Valued contract: 

The benefits under this contract would be paid only when the insured dies. No matter what is the amount of loss, the face amount is been given to the beneficiary.
Example: Life Insurance Policy

Contract of Indeminity:

When a claim is made under this type of policy, only the amount required to compensate the loss would be paid out.
Example: Health Insurance Policy.

Under Third party policy (insurance taken on another person(i.e) policy owner and insured are not same), insurable interest must exist.

Insurable Interest: 

Insurable interest is to make sure that when the insured dies, there is a loss to the policyholder. Insurable interest exist among these relationships
father, mother, son, daughter, grandfather, grandmother, husband, wife, business partners.