The process of buying life insurance can seem complicated. So let’s take a look at most of the parties directly involved in the buying process and demystify their roles and create some clarity.
2. Policy Owner
4. Insurance Company
7. Medical Examiner
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The Insured is the person whose life is insured in the life insurance contract. The insured is the individual who goes through underwriting and shares their health records and fluids to be examined by the insurance company, and the insured is the person whose life is depended upon by their loved ones for buying life insurance.
The Policyowner is the person or entity who owns the life insurance contact. They pay the premiums and are ultimately responsible for buying the contract. Another name for the Policyowner is Applicant. The life insurance contract is made between the Insurance Company and the Policyowner. The Insured and the Policyowner are not necessarily the same person.
The Beneficiary is the person or entity that will receive the life insurance proceeds when the Insured dies. The Beneficiaries are the loved ones who depend upon the income and/or support from the Insured. They are the reason we are buying life insurance in the first place.
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The Insurance Company
The Insurance Company is a financial institution that enters into a unilateral contract with the Policyowner. It makes a legally enforceable promise to pay out a specified amount of proceeds, a.k.a. the death benefit, to the beneficiary of the Life Insurance Policy. Insurance Companies keep large amounts of reserve capital to keep these promises and are regulated by State Insurance Commissioners.
The Agent is an individual or organization that is licensed to offer life insurance to the public. The Agent is an extension of the Insurance Company and is appointed to offer products on their behalf. A Broker is an Agent for multiple Insurance Companies and is appointed with a myriad of carriers to allow the Policyowner access to a wide market. They communicate and advice people on the various insurance companies and products and are advocates for the consumer. The Agent/Broker also is responsible to do all of this ethically.
» Learn more: The Difference Between Life Insurance Agents and Brokers
The Underwriter is a professional that evaluates the risks of insuring a particular Insured and uses that information to set premium pricing for the Insurance Policy. They look over the medical records and lab work of the Insured to assess risk. The Underwriter is well versed in medical and avocation factors that impact life expectancy. They are ultimately accountable for both the decision to offer insurance and for setting the premium the Policyowner pays for the contract.
The Medical Examiner
To receive the best pricing for life insurance, the Insured needs to be examined medically by a health care professional. The Medical Examiner typically comes to the Insured’s home or office and performs an examination that lasts for about 30 minutes. They collect some fluid samples and ask the Insured health questions on behalf of the Insurance Company. Medical Examiners typically are not employed by the Insurance Company or the Agent. They are third parties who perform the objective task of collecting medical information on the Insured.
It takes a small community to set up the contract between the Insurance Company and the Policyowner known as a Life Insurance Policy. The above are most of the parties involved in a life insurance purchase and each plays an important role. There are millions of these invaluable contracts made each year and the process is streamlined so each party performs their specific task to protect families and businesses. And please remember to make sure to let your loved ones know that you have purchased a Life Insurance Policy for their benefit.
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