Life insurance: how does it work and why take out a policy?
But what exactly is a life insurance policy: how does it work and why take out one?
What is a life insurance policy?
A life insurance policy is a contract based on the life of a person. It involves several parties:
- the insurer: who offers the policy and must pay out the value of the policy when it terminates or the insured person dies;
- the policyholder: the person who takes out the policy and pays the premium;
- the insured: the person on whose life the policy is based and on whose death the policy ends;
- the beneficiary: the person(s) who receive the value of the policy when the insured dies or the policy ends.
How does a life insurance policy work?
Several factors must be considered when administering a life insurance policy: the policyholder’s risk profile, the type of premium, the beneficiary, and the choices available during the life of the policy.
The premium is paid by the policyholder. Depending on the choices offered by the insurance company, the premium may be paid in one of two ways:
- as a single premium at the start of the policy;
- as regular annual or monthly premiums, the frequency and amount of which are determined with the insurer when the policy is taken out.
The risk profile and the investment
When taking out the policy the policyholder fills in an “investor profile” questionnaire in order to determine the level of risk he is prepared to accept.
Depending on the result, the policyholder then has the choice between different funds in which the premium will be invested. These funds may be:
- guaranteed rate funds; or
- funds quoted on stock markets, the returns of which may go up as well as down.
The policyholder also chooses the beneficiary/ies of the policy, i.e. the person or persons to whom the value of the policy will be paid when the insured person dies.
The life of the policy
Depending on the alternatives offered by the insurance company, the policyholder may, during the life of the policy:
- make additional payments on his policy;
- make surrenders, i.e. may withdraw part of the sum invested if he needs cash;
- change the funds if there is a change in his risk profile;
- change the beneficiary selected when the policy was taken out.
Why take out a life insurance policy?
Life insurance policies are an extremely flexible products, which enable you:
- to pass on capital to your family and friends;
- to dispose of your capital, at any time, by making a surrender, if necessary;
- to build up a lump sum with which to finance projects (housing, retirement, etc.);
- to make payments at any time;
- to diversify your investments.
Bâloise Assurances' life insurance offer
Bâloise Assurances offers you different solutions depending on your requirements: