The advantage for the policy owner is "peace of mind", in knowing that the death of the insured person will not result in financial hardship for loved ones.
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-based contracts tend to fall into two major categories:
- Term Life Insurance: Designed to provide a benefit in the event of specified event, typically a lump sum payment, for a specific time period. The policy does not accumulate cash value. Term is generally considered “pure” insurance, where the premium pays a benefit in the event of death and nothing else. It is the most affordable kind of life insurance.
- Investment Life Insurance: Designed as permanent insurance with a guaranteed death benefit and cash value growth. The main objective here is to facilitate the growth of capital by regular or single premiums. Common forms (in the US) are whole life, universal life and variable life policies.