Life insurance is a contract between the insurance company and an insured in which the company promises that at the death of the insured, the company will pay a certain amount of money to a person the insured designates in the contract if that person survives the insured. In return for the promise to pay, the insured will pay the life insurance company a premium. Life insurance is considered a third party beneficiary contract because it is made for the benefit of a person who is not a party to the agreement. Also, life insurance is considered a type of will substitute because it is functionally equivalent to a will, but the assets are transferred to the beneficiary within the donee’s lifetime.
Definition from Nolo’s Plain-English Law Dictionary
A contract in which an insurance company agrees to pay money to a designated beneficiary upon the death of the policyholder. In exchange, the policyholder pays a regularly scheduled fee, known as the insurance premiums. The purpose of life insurance is to provide financial support to those who survive the policyholder, such as family members or business partners. When the policyholder dies, the insurance proceeds pass to the beneficiaries free of probate, though they are counted for federal estate tax purposes. There are many types of life insurance, including: term life insurance, whole life insurance, and universal life insurance.
Definition provided by Nolo’s Plain-English Law Dictionary.
August 19, 2010, 5:19 pm