Whether it's for your home, auto or yourself, you have insurance to protect your family. When you look at the general aims and objectives of insurance policies, though, it's important to separate basic protection today from planning for the future. The objectives of life insurance generally revolve around providing security for your survivors after death, but some policies have actual cash value that you can access during your own lifetime.
Protective Objectives of Life Insurance
When it comes down to it, insurance exists for security. With insurance in place, you can rest easier at night, knowing that if you're in a car accident or you have a health crisis, you won't have to deplete your life savings. Life insurance is geared toward taking care of your loved ones after your death, whether you're a fit, healthy 20-something or a retiree in your 80s.
With life insurance in place, you can:
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- Ensure your mortgage is paid and your family is comfortable after your death
- Avoid infighting among survivors over your remaining assets
- Cover costs like funeral expenses and estate taxes
- Provide liability protection for your estate
Types of Life Insurance
It's hard to consider the aims and objectives of insurance policies without first going through the different types. They are:
- Term life insurance – As its name implies, term life is designed to last for a specific term. You'll take out a term life insurance policy for 10 years, for instance. At the end of that term, you can opt to renew, but you'll generally pay much higher premiums. The biggest benefit of term life is that it usually costs less for the initial policy.
- Universal life insurance – These policies are designed to provide coverage for your entire life, often giving you the flexibility to change your coverage amounts and premiums during that time.
- Whole life insurance – This type of insurance covers you for your entire life, but premiums are fixed. Although that seems like it fits the objective of the insurance company more than the insured, these policies have actual cash value, so they can be a savings vehicle while you're alive. Term life policies don't.
If, for you, the aims and objectives of life insurance are to leave money behind for your beneficiaries, whole or universal life insurance may be the best option, due to its cash value. Term life is designed to replace your income if something happens to you during your working years.
Objective of Insurance Company
As with any other business, insurance companies are in it to make money. While the aims and objectives of insurance policies may be to provide security for you and your loved ones, the insurance company has payroll and other operating expenses. The goal for an insurance company is to set premiums high enough to cover their losses, while also keeping them low enough to remain competitive.
Life insurance companies reduce their risks by learning as much information as possible about you, including generating a health profile and setting higher premiums for riskier policyholders. An insurer will often require a medical exam to get the information for themselves, but some use medical records provided by your doctors. Insurers may also pull information such as your credit history and driving record.
Premiums aren't the only income-generating objective of an insurance company, though. In addition to pulling in money each month to cover claims and operating expenses, insurers also invest the money they bring in. In addition to making money, the aims and objectives of life insurance companies are to provide good customer service so that they can attract new customers and retain the ones they already have.