There are many people who seem to discuss life insurance, as though, everyone understands all of the complexities of it. This is an unfair assumption for them to have, as many of us do not even understand what life insurance is. Perhaps some of the following information will help to clear up the issue.
Life insurance is a legal contract agreement between an individual and an insurance company. This contract financially protects against the death of the person whom the insurance is on. It provides money to those listed in the contract (usually closest family) to help bridge the financial turmoil that can occur with the death of a loved one.
In order to receive the benefits that a life insurance contract provides upon death, one must pay a monthly premium. A premium is an amount of money that you pay in order to hold the contract. It is how the insurance companies make their money.
The amount of money that your loved ones will receive will be significantly higher than the amount of money that you put into the system. However, the insurance companies are still able to make money because they have far more people paying into the system than those who are making claims.
A claim is when the policy is turned in for the monetary benefits. This almost always happens at the time of death of the individual on the policy. The insurance companies pay out the money owed at the time of the claim. However, there are some exceptions to this general rule. In some cases, people may choose an accelerated benefit option, whereby they receive some of their money right now. However, when they choose this option they are sacrificing some of the money that they have in the policy.
You should always look into the specifics of your policy or any policy you are considering buying, to understand exactly what your options are when it comes to making a claim or receiving an accelerated benefit.