Life insurance is like any other kind of insurance, with the big exception being that the insurance is only paid out if the party taking out the insurance dies. The payment is sent usually to the next of kin. However, there are two kinds of life insurance.

Type 1: Temporary Insurance

A temporary life insurance policy only covers a person over a period of time, usually when he is employed at a certain occupation and costs a specific premium. In most cases, insurance policies that are temporary only cover death and nothing short of that.

Type 2: Permanent Insurance

Permanent insurance removes the time element from temporary insurance and lasts for the life of the holder. In this case, the policy cannot be canceled by the insurance company. However, the owner of the insurance must always make payments on his premiums or risk forfeiting the policy entirely.

History

The concept of life insurance dates back to ancient Rome, where certain "burial clubs" were used to cover the cost of a person's burial, but only if a person bought a membership into the club.

Function

The concept of life insurance is simple: A person takes out a policy through a company, detailing what exactly has to happen to them in order for the policy to pay out. In the case of life insurance, usually this means the person must die unexpectedly and without warning. The goal of life insurance is to make sure your family can still get by if you died.

Exploitation and Fraud

Life insurance policies have also been used in cases of fraud, in which a party takes out a policy in someone else's name and kills them, and then gets payment from the life insurance company for the policy. Cases such as this are extremely rare.

Source:

MetLife.com