Taking out a life insurance policy is one of those fundamental initiatives to be taken by anyone who wants to remain calm and protected in any circumstance in life, especially since its benefits go far beyond paying the children in the event of the contractor’s death.
Did you know, for example, that modern life insurance policies cover per diems for hospital stays, reimburse your medication expenses and even ensure payment of the insured amount in the event of a diagnosis of serious illness?
Well, life insurance today is a complete product, which mixes the advantages of health plans, family protection mechanisms and strategies for transferring assets.
Let’s understand, therefore, definitively, what is a life insurance policy owner and what are the advantages of having one?
What is Life Insurance Policy?
We all have happy and unhappy experiences, and learning to deal with them all is one of the great beauties of life. Many of the bad moments can occur, leaving us without any power of action; however, others can be avoided or mitigated. To ensure that we are able to deal with some of them, one of the alternatives is to take out a life insurance policy .
A policy is a contract in which two parties — insurer and insured — define the rules for contracting insurance. In this contract, the risks to which the insured person is subject are established, as well as the amounts to which he or his heirs are entitled should any of the foreseen situations occur.
In that same document, the responsibilities of each party are also mentioned, such as the beneficiaries who may receive the corresponding capital in the event of a claim (occurrence of the event whose protection was contracted), as well as the form of payment.
The life insurance policy is what guarantees the insured person that he will be entitled to the contracted benefits; to the insurer, in turn, that it will receive the agreed amount for the service rendered. For this reason, it is an instrument with full legal validity.
The issuance of the policy can be done within 15 days after contracting, during which time the insured person will be covered by the insurance, even without this document in hand. On the other hand, the insurer may, in the meantime, refuse the client’s request due to the result of the risk analysis.
What are the main elements of an insurance policy?
The life insurance policy is full of concepts that are also present in other insurance products. The most important ones you can see below.
insurable interest
Many people confuse insurable interest with the object of insurance. The insurable interest is nothing more than the relationship between a person (insured or beneficiary) and the object of insurance, which is threatened by a certain risk.
It involves the legal holder of a right, the value of the protected asset and the expectation of damage to it, and is therefore broader than the simple asset to be supported by the insurer.
insurable risk
The insurable interest is closely related to the risk, the existence of which justifies taking out insurance. The insurable risk is any future and uncertain event, outside the will and control of the parties, provided for in the contract and whose occurrence triggers the need for compensation by the insurer to the beneficiary/contractor.
In the specific case of the life insurance policy, the possibility of death or disability during the term of the contract are the main insurable risks. The insurable risk is every unforeseen negative fact for which there is coverage in the contract and which can be financially measured.
Award
Insurance premium is the amount paid monthly by the contractor to transfer the risk of a certain damage to the insurer. This is the main obligation of the insured, and is calculated based on the possibility that the risk materializes during the contract.
If you want to go deeper into the subject, it is worth taking a look at the life insurance market glossary .
What are the main types of policy?
There are a few types of policies that you will come across when researching about taking out life insurance.
Open or closed policies
Open policies can be freely altered according to future needs, which may involve the entry or exclusion of new policyholders, changes in the scope of the object of the contract, changes in the capital value and beneficiaries, etc.
This flexibility does not exist in closed policies; in them, all policyholders are defined at the time of signing the contract, and no changes are allowed.
Individual or collective policies
As the name implies, the individual life insurance policy is negotiated directly on behalf of a single policyholder with the insurer. This model, as explained above, offers more freedom for customizations, but, on the other hand, it can be more expensive than entering group policies.
The collective policy is usually made in the corporate universe, when it is the company that negotiates the terms of the contract with the insurer, according to the number of lives that it will deliver for protection .
In this format, employees already enter into a previously defined contract, with no possibility of modifications. The fact of providing for the safety of dozens or hundreds of lives at once usually makes this product more affordable than the individual model.
Redeemable life insurance policy
Present in individual and collective models, redeemable life insurance is a mixture of family and investment protection.
In a nutshell, this is a traditional life insurance (whose accumulated capital reverts to the insured or the beneficiary in the event of an accident), but which simultaneously presents the possibility of redeeming the amounts earned in the event of an emergency (financial reserve ).
An interesting detail is that the redeemable percentage increases proportionally over the time that the contracting party (stipulator) remains with the active life insurance policy.
term life insurance
Provides coverage for a specified period (specified in the contract). It is widely used by those who are still building assets and, due to the shorter period of validity, usually have more attractive values.
What should be included in a life insurance policy?
While each insurer is free to set their own terms, there is a backbone that companies in the industry follow. This guideline is defined by the Superintendence of Private Insurance (SUSEP), a federal agency responsible for overseeing and controlling the insurance market in the country. It is about this base structure that we will talk next.
General conditions
These are the general rules that regulate the relationship between the insurer and the insured. The rights and obligations of the parties, the coverage of the policy, the exclusions and the general clauses are listed. It is important that you always read this document to clear up doubts before contracting the insurance .
Special conditions
These are the additional coverages that come with the life insurance policy, such as the benefits that we will mention later. Special conditions may not apply to all types of life insurance policy and are usually linked to the amount the policyholder will have to pay to obtain them.
Private conditions
This item lists in detail the coverage and the respective indemnities. In this topic, the beneficiaries will be mentioned, the percentages that fit each one, the specific characteristics of the contract and the effective date.
What are the benefits of life insurance?
In addition to traditional coverage, such as accidental death and funeral assistance, insurers often offer other benefits to attract and retain customers. This is the case of residential and car assistance, discounts at partner pharmacies and family assistance, as is the case with the supply of basic food baskets when the insured person is absent.
The life insurance policy is mainly concerned with offering peace of mind and comfort to the family. In the event of the contractor’s death, the dependents will be financially covered, receiving the insured capital quickly in order to prevent the family fatality from also becoming a financial fatality.
Also during an illness, both the insured and dependents can take advantage of the policy’s advantages to obtain discounted medication, psychological assistance, second medical opinion and other types of support, depending on what has been agreed.
The insured’s consideration, that is, the payment of the life insurance, is made monthly and can be negotiated with the insurer, not forgetting that the lack of payment can invalidate the contract and lead the contractor to lose the amounts already paid.
But isn’t life insurance just compensation to the family in case of death?
Not. When asked what a life insurance policy is, many people answer that it is just a contract in which a person pays a monthly amount to the insurer and guarantees that his beneficiaries will receive compensation in the event of his death. But you can be sure that life insurance is much more than that.
It is this lack of knowledge, by the way, that explains why many families experience serious financial difficulties after the loss of a loved one. Knowing the benefits of the policies and their low prices could solve these situations. So let’s clarify this issue definitively.
The primary and mandatory coverage of life insurance is against the risk of death, whether accidental or natural. This does not mean that this product only offers this benefit. In fact, the best insurance on the market has dozens of coverages, such as:
• total or partial permanent disability due to an accident (IPA);
• permanent disability due to major accident (IPAM);
• total permanent functional disability due to disease (IBPD);
• total permanent work disability due to illness (ILPD);
• medical, hospital and dental expenses (DMHO);
• daily temporary disability ( DIT ), with repetitive strain injury (RSI), work-related musculoskeletal disorder (DORT) and hernias;
• per diem per hospital stay (DIH);
• Spouse coverage extension;
• serious illnesses (GD);
• funeral assistance (coverage of expenses of this nature up to the contracted limit, in the event of the death of the insured person, spouse and children under 21);
• organ transplantation (corneal, kidney, liver, heart or bone marrow).
But the benefits don’t stop there. It is possible to find life insurance policies with combinations of exclusive coverage, such as educational coverage (support for expenses with children’s schools), which is valid both in the event of death, disability or unemployment of the insured person.
Along the same lines, there is also the possibility of including credit life coverage (which ensures the discharge of the insured’s debts, also in the event of death, disability or even unemployment).
The best products on the market still offer benefits such as Personal Care Assistance (which provides residential, automotive, nutritional and medication assistance) and even the supply of the basic food basket mentioned above, to be paid to the family for a period of one year in the event of the death of the insured.
Do you now understand what a life insurance policy is and how it can guarantee your family’s peace of mind?
What to consider when choosing life insurance?
At the time of contracting the policy, assess what your real needs are. For example, if you already have adult (and working) children, your policy may not need to be as high or have additional benefits such as dependent assistance. If you have children under the age of 18, the care might be a little higher, possibly involving coverage for school fees .
You should also check what your actual payment capacity is. There’s no point taking out a high-value life insurance policy if, in a financial crisis, you can’t keep up with payments. Remember that when the contract is breached due to non-payment, you will have lost all the money invested.
Another issue to consider is coverage. Obviously, we are more concerned with death, but there are other situations that must be taken into account when purchasing life insurance: temporary or permanent disability due to an accident or illness, medical and hospital assistance in serious cases, hospitalization, among others.
For example, if your family has a history of heart or kidney disease, it’s a good idea to have coverage for high-risk procedures such as surgery or transplants. If your parents have illnesses such as Parkinson’s or Alzheimer’s , which are debilitating, it is interesting to consider coverage for permanent disability due to illness.
What are the main risks excluded from life insurance?
Exclusion clauses usually appear on the last pages of the contract and must be read with extreme care. All excluded risks must be presented by the insurer in detail. The most common ones are:
• suicide (within the two-year grace period);
• pre-existing illnesses, whose terms have not been informed in the health declaration;
• use of nuclear material, nuclear accidents and the like;
• involvement in war operations, rebellion and riots;
• practice of intentional illicit acts that resulted in death.
Understanding what a life insurance policy is and knowing how to use it to the fullest of its potential depends directly on a complete reading of the insurance terms, especially the exclusion conditions.
How is the life insurance premium (monthly payment) calculated?
Before explaining this issue, it is important to remember: as we commented in the topic dedicated to the main elements of an insurance policy, the term “premium”, in the insurance market, refers to the monthly fee to be paid to the insurer and not to the indemnity to be paid. be handed over to the insured in the event of an accident.
Bearing this in mind, the insurance premium will be calculated according to the probability of the covered risk materializing during the term of the contract.
As it is an insurance to be activated in the event of death, the greater the age of the contractor, the greater the costs. Most insurers, for example, offer resistance to the issuance of life insurance policies for people over 61 years of age .
When contacting an insurance broker, he will send you a form from the insurance company, to be completed for the company’s analysis. Age range, gender (women have a higher life expectancy), health status, income level and profession (a firefighter, from the point of view of the occupation, is exposed to more risks than a businessman) are some of the factors to be evaluated.
The insurer’s risk analysis sector will also assess whether the insured person practices sports and what his lifestyle is. All this data will be electronically crossed in order to assemble a profile of the insured person and thus understand in which position he is in the risk matrix. It is from this knowledge that the value of the insurance premium will be arrived at.
Companies that sell life insurance and private pension often use a risk calculation instrument called a biometric table.
Is there a possibility of the indemnity being cancelled?
In general, the denial of compensation occurs due to delays in payments or if the life insurance policy is in a grace period. For the first controversy, however, there is already pacified jurisprudence in the courts.
In general, it is understood that, if an insured person is late in paying the premium and dies during this period, the insurer cannot refuse to release the indemnity payment to the beneficiaries, unless it can prove that, before the death of the contractor, notified him of the delay, giving him a deadline for regularization.
The same reasoning applies to other types of claim (such as disability). This understanding can be confirmed through numerous judgments.
In the second situation, that of an insured person in a grace period, the Judiciary has defined the obligation to pay compensation only when the grace period violates the Consumer Protection Code (CDC), that is, when it is considered abusive (disproportionate to the contract time).
In other cases, the grace period must guide the decision to grant (or not) the payment of compensation. In the case of suicide , for example, the STJ established an understanding that this type of death will only be covered after two years of the contract.
