Life insurance can be described as an agreement between an individual and the insurance company that he has selected. The bases of the agreement lies in the idea that the company will pay up a decided amount to the insured persons beneficiaries (generally family members), if the person agrees to pay a recurring fee till the point of his/her timely or untimely demise.

Companies in certain companies also provide cover for the funeral catering costs. However, companies in the UK offer basic life insurance plans i.e., simply paying a large sum to the beneficiaries in the case of the insured persons death.

A general life insurance plan will include terms for their contract which will comprise of a list of death circumstances, any of which if the insured succumbs to, he/she will not be covered for. The valid situations of death are also mentioned. The methods of death which may not result in compensation include suicide deaths, death during a riot or war.

Life coverage is generally available in 2 different forms: protection or investment policies. A protection policy is like any average coverage where a benefit will be required to be given to the beneficiaries (generally a lump sum) if the cause of death is valid and comes under those mentioned in the contract rules. On the other hand, an Investment policy is used to grow your capital by making regular payments. Popularly known types include variable, whole and universal life policies.

A beneficiary is the person who will receive the lump sum at the time of death of the insured. He/she can be replaced at any point of time by the person holding the policy unless the beneficiary is bound in within the contract in the case of which the insured must have the permission of the beneficiary before making any change.

Despite generally being the same person, there’s a difference between the owner of the policy and the insured person. This is possible if say a man insures his wife in which case he is the owner and his wife is the insured.

In the above mentioned case where the insured and owner of the policy are separate entities, companies are maintaining a limit as to who can insure whos life. In theory, this is known as insurance interest requirements. Its relevance is that the owner will genuinely suffer a loss in the case of the death of the person insured. This is to curtail the number of frauds who insure someone whom they expect to die soon enough and don’t really care too much about. It also reduces the number of people willing to murder the insured person to reap the benefits themselves.

Life insurance in totality is a legally binding contract between the provider and the insured individual as a result of which payments are made regularly to the providing company by the owner of the policy, and if by chance one of the death terms mentioned in the contract does occur, a decided sum of money is given to the beneficiaries who have been mentioned in the contract.