Life and Health Insurers

Key Highlights
Life and health (L&H) insurers are companies that provide coverage on the risk of life and medical expenses that arise from health issues.
L&H insurers cover mainly life and health insurance.
Customers pay L&H insurers an insurance premium for their desired coverage.
Life Insurance
Life insurance offers coverage for the risk of loss of life. In other words, life insurance pays out a specified sum of money if an insured individual passes away. The amount of money paid goes to the beneficiary indicated in the policy. To be insured, an individual pays an insurance premium, which can be a lump sum amount or an amount paid in installments. On the maturity of life insurance, the money invested is typically recovered.

Health Insurance
Health insurance offers coverage up to a certain amount for medical expenses arising from illness or injuries. To be insured, an individual pays a lump sum insurance premium or makes monthly premium payments.

Scenarios that Life and Health Insurers Cover
The following are several scenarios covered by life or health insurance:

1. An individual passes away
John, an insured individual, passes away. The life insurer would pay out a monetary amount to the recipient (beneficiary) whom John indicated on his insurance.

2. An individual suffers an illness
Josh, an insured individual, was recently diagnosed with an illness. His health insurer would cover medical expenses up to a specified maximum amount.

How Does Life and Health Insurance Work?
Life and health insurers offer life and health insurance to customers for the risk of loss of life and medical expenses arising from health issues, up to a certain coverage amount, in exchange for insurance premiums. Insurance premiums are cash outflows made by the customer in exchange for insurance.

Similar to other insurers, when L&H insurers offer coverage to a customer, they must determine an insurance premium for the customer to pay. They do this by looking at the riskiness of the customer – specifically, the likelihood of the customer making a claim and the likely amount of the claim. A diagram is provided below that outlines the process: