This chapter deals with life insurance.   Not exactly a fun topic - but an essential one IF you have family or loved ones (or a personal finance instructor who is fully qualified to be a "no-strings-attatched" beneficiary).   Life insurance allows you to buy large amounts of coverage at relatively low prices.   The proceeds of a payment are free from the claims of creditors and tax authorities.

Life insurance is a contract between the policy holder and the insurer, where the insurer promises to pay a designated beneficiary a sum of money (the "benefits") upon the death of the insured person.   Depending on the contract, other events such as terminal illness or critical illness may also trigger payment.   In return, the policy holder agrees to pay a stipulated amount (the "premium") at regular intervals or in lump sums.   In some countries, death expenses such as funerals are included in the premium; however, in the United States the predominant form simply specifies a lump sum to be paid on the insured's demise.

The value for the policy owner is the 'peace of mind' in knowing that the death of the insured person will not result in financial hardship.

Life policies are legal contracts and the terms of the contract describe the limitations of the insured events.   Specific exclusions are often written into the contract to limit the liability of the insurer; common examples are claims relating to suicide, fraud, war, riot and civil commotion.

Life insurance is based on the concept of risk pooling.   You pay a small premium based upon information your insurance company requests and in the event of your death a payment is made to your beneficiaries.   Naturally, the absolute certainty of an insured’s death makes life insurance policies different than disability or car insurance.   The "risk" of your death during the period of the insurance coverage determines the premium you are charged by the insurer.   The chance of your death during a specified period (your risk) is estimated through the use of mortality tables.   They are based on many years of statistical data.   As you survive each year, your life expectancy increases.   Since the risk of dying is related to your health, the insurance company will ask for your medical history before agreeing to underwrite the insurance policy.   If the policy you are requesting is for a large amount then an individual may be asked to undergo a medical exam.  

FYI: The people who determine your "risk" are called "actuaries".   An actuary is a "specialist in the mathematics of risk, especially as it relates to insurance calculations such as premiums, reserves, dividends, and insurance and annuity rates.  They work for insurance companies to evaluate applications based on risk.

Why should I buy life insurance ?
Many financial experts consider life insurance to be the cornerstone of sound financial planning.   It can be an important tool in the following situations:

Replace income for dependents If people depend on your income, life insurance can replace that income for them if you die.   Parents with young children are prime candidates.   Couples in which the surviving spouse would be financially stricken by the income lost through the death of a partner, and to dependent adults, such as parents, siblings or adult children who continue to rely on you financially. Pay final expenses Life insurance can pay your funeral and burial costs, probate and other estate administration costs, debts and medical expenses not covered by health insurance. Create an inheritance for your heirs Even if you have no other assets to pass to your heirs, you can create an inheritance by buying a life insurance policy and naming them as beneficiaries. Pay federal “death” taxes and state “death” taxes Life insurance benefits can pay estate taxes so that your heirs will not have to liquidate other assets or take a smaller inheritance. Make significant charitable contributions By making a charity the beneficiary of your life insurance, you can make a much larger contribution than if you donated the cash equivalent of the policy’s premiums. Create a source of savings Some types of life insurance create a cash value that, if not paid out as a death benefit, can be borrowed or withdrawn on the owner’s request.