Life Insurance Basics
The three parties
Life insurance involves the owner, the insured, and the beneficiary. The owner controls the policy, pays premiums, names beneficiaries, and may borrow or surrender; the insured is the person whose life is covered; the beneficiary receives proceeds. Insurable interest must exist at issue, not at death. A beneficiary can generally be revocable or irrevocable; an irrevocable beneficiary's consent is needed to change the designation.
Pricing and underwriting
Premiums reflect mortality, interest/earnings, and expenses. Level premium term and permanent policies spread increasing mortality cost over time. Underwriting classifies risk as preferred, standard, substandard, or declined; substandard risks may be rated or charged extra. The application, medical exam, attending physician statement, and MIB are common information sources. A conditional receipt can provide interim coverage if conditions are met; delivery and free-look rules give the owner a review period.
Traps
Do not say insurable interest is required at death. Dividends on participating policies are not guaranteed. A policy is not in force merely because the application was submitted; conditional receipt terms matter. The producer should not imply that a lower premium guarantees a better policy.
Worked example
A 40-year-old buys a $500,000 20-year level term policy with a $600 annual premium. The premium stays level for 20 years even though mortality risk rises, because the insurer averages cost over the level-premium period. If the insured dies during the term, the beneficiary receives $500,000; if the insured survives, there is no cash value unless the policy includes a return-of-premium feature.