How a life insurance works

Is a very common question to all people on how a life insurance works...Why people need life insurance ?

People need Insurance because , Through Insurance :

1) The Power To Create An Immediate Estate
One of the most powerful aspects of purchasing a life insurance policy is the ability of the insured to create an immediate estate, which is legally valid and recognizable in the court of law. Through a simple contract with the insurer, an immediate estate is created which may form a part of his total estae such as

properties and business interests.

In comparison to acquiring property, owning a successful business having cash savings and other forms of investments, the insured would most likely have to invest his limited time and resouces. To build a net worth of $500,000 would require possibly a lifetime for a majority of the working population. There is of course, no guaratee of success, as there will be elements of economic uncertainty, mismanagement, external factors, or timing, which may affect his good intentions.

On the other hand, purchasing $500,000 life insurance policy creates an immediate estate of that amount at a fraction of the cost. Besides, most life insurance policies have increasing cash values. Such policies posses a certain asset value in which the insured can exert ownership just as with other personal property or assets permissible by law.
2) The Power Of Compounding Interest

In simple interest theory, a capital sum of $1000 that is accumulated at 5% per annum would derive an interest amount at the end of the year of $50. If the interest is not included in the capital sum, a 5 year interest accumulation at the same amount and interest rate would mean a total $250 in interest earned. There is therefore no re-investment of interest.

With compound interest, the amount of $50 is added onto the initial $1000 and becomes additional capital sum to be invested at 5%. To derive the total amount where the initial capital p is accumulated over n years at an interest rate of i%, the formula to derive total amount = p(1+i)n

As the result, interest earned through compounding the interest over the same duration to be more than interest earned under the simple interest method.
However, there are other factors which should also be considered when using the compound formula such as inflation rate and interest rate achievable.