‘Life Insurance’ or ‘Life Assurance’ is a term that everyone has heard but few know how life insurance actually works.  Besides, there are so many life insurance policies available these days that the common man can get confused about which will suit his specific needs.  He may end up getting the wrong policy, paying high premiums with not many benefits because there are unscrupulous insurance agents who look to exploit the gullible novice.  Unless we know the basics of how life insurance works, we will not know how to choose cheap life insurance.

Categorizations of Life insurance are as follows:
1. Term Life Insurance
2.    Permanent Life Insurance [which has the following sub types]
-Whole life insurance
-Universal life insurance
-Variable life insurance.

Term life insurance is for short duration and permanent life insurance is for full duration of insured’s life. Term life insurance cost can change but it is less than the cost of permanent life insurance.

An actuary will use simple mathematical formulas to identify premium for you. People who have the habits of smoking, taking drugs or ones who eat junk food are likely to die early in their life. Hence such people might pay more towards insurance premium than the others. Besides lifestyle questions, there are other questions and compulsory medical tests one has to take up to determine premiums. 

If the medical tests do not reveal any serious health risks, you will be deemed ‘insurable’ and the premiums will be calculated based on the specific risk category into which you fall.  This risk category depends on factors like lifestyle pattern, occupations, gender, race etc.  If you do not wish to undergo medical tests for various personal reasons, you can opt for life insurance no exam policy that will require you to fill a basic questionnaire regarding your health and not undergo medical tests.  If the insurance carrier is satisfied with your reply, you can be eligible for this type of policy but at higher premiums.

Now, let us see what factors the insured person has to consider when applying for a life insurance policy.  You must first have a clear idea as to the amount you wish your beneficiaries to receive upon your death.  Usually, an insurance amount is used to repay any outstanding debts like mortgage payments.  Hence, you must have an idea as to your future debt commitments and make sure your insurance coverage is at least 8-10 times your current salary.  Make sure your beneficiaries are legitimate for if they seem suspicious in any way, your insurance application will be summarily rejected. 

Always ensure that you need to be absolutely true when you give your lifestyle information to the insurance company. In case you are not giving the true information, you might be able to get insurance, nevertheless if they find out your true status at a later point in time it could result in cancellation of your insurance and any premium paid so far will be taken by the insurance itself. The insurance company will ask all personal information and your answers will be kept confidential all the while. This is done basically to get an understanding of the exact premium amount that need to be charged to you. In case if the policy holder commits suicide or murdered by the family members.

Application process is a step by step process. Primary step is to complete the application form. Next step is medical tests to be taken. Then once the application is received by the insurance, it will be sent for further scrutiny. By adopting statistical analysis, risks involved in the account will be calculated.

Using a ready reconner table prepared by the company, the premium amount is worked out. At this stage, a high risk application would be rejected. If the application is accepted a policy with details like coverage amount, premium amounts, terms and conditions and all would be recorded. The insurer should read and understand the clauses found in the policy. The insurer can seek for clarification on the points of doubts before singing the document. After this process is completed, one can pay the first premium and feel high of having a good and purposeful insurance policy and enjoy a long life.