What are the main reasons for insurance contracts or purchasing an insurance?

Some types of insurance you have to take out by law such as motor insurance if you drive a vehicle; some you may need as a condition of a contract such as buildings insurance as a requirement of your mortgage; and others are sensible to take out such as life insurance or saving for a pension.

While it is a good idea to make sure you are not paying for insurance that you don’t need, you should always think about what would happen if disaster struck and you didn’t have cover to protect you.

You can buy insurance policies for many aspects of your life, for example for your health, home, car, business, or retirement.

An insurance policy is the contract that you take out with an insurer to protect you against specific risks under agreed terms.  

How it works

When you buy a policy you make regular payments, known as premiums, to the insurer. If you make a claim your insurer will pay out for the loss that is covered under the policy.

If you don’t make a claim, you won’t get your money back; instead it is pooled with the premiums of other policyholders who have taken out insurance with the same insurance company. If you make a claim the money comes from the pool of policyholders’ premiums.

To decide on the type of insurance you need think about:

• why you need cover
• what you want to include in your cover
• how much you can afford
• how long you might need cover for
• whether you want cover for yourself and / or for loved ones

To buy insurance cover you can:

• contact an insurer directly, either online or over the phone
• seek professional advice through an insurance broker via the British Insurance Brokers' Association (BIBA) 
• speak to an independent financial adviser through the Association of Professional Financial Advisors and / or unbiased.co.uk, a comprehensive website where you can find specialist, professional financial advisers
• check comparison websites to get the best deal on the type of policy you're looking for
• for more information see how to buy insurance

How premiums are calculated

Insurers use risk data to calculate the likelihood of the event you are insuring against happening. This information is used to work out the cost of your premium. The more likely the event you are insuring against is to occur, the higher the risk to the insurer and, as a result, the higher the cost of your premium.

An insurer will take two important factors into account when working out the premium they will charge.

1. How likely is it in general terms that someone will need to make a claim?
2. Is the person who wants to take out a policy a bigger or smaller risk than the ‘average’ policyholder (for example, a young person with a high-powered car may be charged a higher premium as they are statistically more likely to be involved in an accident than a mature, experienced driver)?

Only a proportion of policyholders will make a claim in any one year. 

Standard policy conditions 

Although policies have different terms and conditions, in general there are three main principles that are common across all insurance policies. These include:

• cover is provided for the actual value of the property or item that has been lost or damaged (its replacement value), but does not include any sentimental value
• there needs to be a large number of similar risks so that the likelihood of a claim can be spread among other policyholders. It must be possible for insurers to calculate the chance of loss so that a premium can be set which matches the risk
• losses must not be deliberate

For more information

• read our how to buy insurance page for information about shopping around
• read the ABI guide on insurance in the UK – the benefits of pricing risk (pdf 1.57MB) to find out more about how insurance works

Reasons to buy insurance are different for everyone. But the decision to purchase insurance is, at its core, all about providing financial security for yourself and the ones you care about. Learn why life insurance is important, and who needs it.

Why is life insurance important?

Buying life insurance protects your spouse and children from the potentially devastating financial losses that could result if something happened to you. It provides financial security, helps to pay off debts, helps to pay living expenses, and helps to pay any medical or final expenses. 

Life insurance provides cash when you need it most.

Your life insurance policy can deliver a specified sum of money when you need it. Upon your death, your family will receive your policy payout immediately. And that death benefit is generally not subject to federal income taxes. For example, a $500,000 policy provides $500,000 in death benefit proceeds directly to your beneficiary.

Steps in the insurance buying process:

1. Determine your goals, determine how much insurance you need to meet your goals over time, and determine what you can afford to pay.
   
2. Learn what types of insurance can help you meet your needs.
   
3. After considering initial premium payments, any possible increases in premiums over time, any additional death benefits,1 and any living benefits2 that can be utilized before you die, choose the type of insurance policy (or combination of types) that best meets your needs.
   

Remember, working with a financial professional can help make this whole process easier. A financial professional can help explain the differences between types of policies, help you calculate the amount you need, and present potential options that may best suit your needs.

6 reasons to buy life insurance.

Life insurance can give you lasting peace of mind in terms of the assurance that you have provided a legacy. That’s because the right coverage can offer a valuable combination of benefits, many guaranteed by the claims-paying ability of New York Life—so that you and your loved ones know exactly what you’re getting.3 Of course, you have to make a long-term commitment to paying premiums and keeping the policy in force.  Some of the most common reasons for buying life insurance include: 

1. Guaranteed protection
   If you have a family, a business, or others who depend on you, the life insurance benefit of a whole life policy acts as a financial safety net. When you die, your beneficiaries will receive a lump-sum payment that is guaranteed to be paid in full (provided all premiums are paid and there are no outstanding loans). It’s essential protection that you can count on to be there for your loved ones when needed.
2. Income replacement
   Imagine what would happen to your family if the income you provide suddenly disappeared. With whole life insurance, you can help make sure that your loved ones have the money they need to help:

• Pay the mortgage
• Afford childcare, health care, or other services 
• Cover tuition or other college expenses 
  
• Eliminate household debt
  
• Preserve a family business

3. Tax-free benefit
Your beneficiaries will be able to enjoy every penny you leave them. That’s because the benefit of a life insurance policy is generally passed along federal income tax free.

4. Guaranteed cash value growth
As you pay your premiums, your Whole Life policy builds cash value that is guaranteed to grow—tax deferred—and can help meet a variety of financial goals: 

• Supplement retirement income 
• Fund a child or grandchild’s education 
• Pay off a mortgage 
• Protect existing assets 
• Establish an emergency fund 

5. Dividend potential
One of the benefits of purchasing whole life insurance from New York Life is that you will be eligible to receive dividends.4 Although they are not guaranteed, when dividends are awarded, you can take them in cash, use them to offset your premiums, or use them to buy paid-up additional insurance that increases your coverage and cash value, use them to offset your premiums, or take them in cash.

6. Optional riders
There are several ways to tailor a whole life policy to meet your individual needs. For an additional cost, you can use riders to purchase additional protection without further underwriting, to pay your premiums if you become disabled, to use some of your face amount to pay for chronic illnesses, or to purchase coverage for your children. Your agent can help you decide if any of these riders are right for you.

1The life insurance death benefit is the amount that is paid when the policy is in effect and the insured dies. The insured is the person whose life is covered under the policy. Accessing the cash value of a Whole Life policy for special expenditures will reduce the available cash surrender value and the death benefit.
2A living benefit is any benefit the policy owner can access while the insured is still living. Not all life insurance policies are designed to offer living benefits.
3All guarantees are based on the claims-paying ability of the issuer
4While dividends are not guaranteed, eligible policy owners have received them for more than 160 years. Some policies are participating but are not expected to receive dividends.

Oregon Policy Form Numbers for New York Life Whole Life: New York Life Insurance Company is the issuer of New York Life Whole Life. In Oregon, the Whole Life policy form number is ICC18217-50P (4/18). SMRU # 1891275

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