What is Life Insurance Law?

N. Madison

Life insurance law is a category of law focused on agreements in which one party contracts to pay a sum in the event another party dies before the contract expires. This legal category typically covers laws related to the beneficiaries of these contracts as well. Life insurance laws may include not only those related to the types of coverage a company may sell, but also laws governing the requirements for paying benefits, handling disputes over life insurance, and taxing benefits. Additionally, this legal category may include laws that involve dealing with fraud and policy calculation. The particular laws that apply vary by jurisdiction, however.

A courthouse.
A courthouse.

Life insurance laws often allow for contracts between insurance companies and parties who wish to leave something behind in the event of their deaths. These parties typically contract to pay premiums to an insurance company over a specific duration of time. The insurance company, in turn, agrees to pay money to the policyholder's beneficiaries in the event the policyholder dies. Typically, these benefits are paid in a lump sum, but some policies may allow for periodic payments instead.

The laws set in most jurisdictions allow life insurance companies to offer a wide variety of insurance products to their customers. For example, a life insurance company may offer whole life insurance, which allows a person to pay level premiums until the policy ends with the party reaching a specific age, such as 90 years old. Often, policyholders can borrow against these types of policies. Term insurance, on the other hand, is usually valid for a specific number of years, requires the policyholder to pay premiums that increase over time, and does not accrue cash value against which a person may borrow. There are many other types of policies as well.

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Often, life insurance law in a particular jurisdiction also stipulates whom can purchase a policy to insure another person. These laws, for example, may govern whether a husband can purchase a policy that insures his wife or an ex-wife can purchase a policy that covers her former husband. Likewise, life insurance law may cover how beneficiaries may be named and paid as well as how policy money should be distributed in the event a beneficiary fails to outlive a policyholder. Additionally, such laws often stipulate how disputes, fraudulent activities, and policy cancellations are handled.

Life insurance law may also include protections for those who purchase policies. For example, such laws may allow a consumer a particular amount of time to review a policy and cancel it without losing money. Life insurance laws may also require insurers to provide reasonable grace periods for late premium payments. Most jurisdictions have laws that require insurance companies to pay benefits in a timely manner as well.

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