Understanding how life insurance works

According to a well-established custom, “Life insurance” indicates a set of products that can also move very far from the traditional concept of insurance as “coverage of a risk”, and instead approach the logic of financial products (which are investment instruments).

Being aware of this is important to know what we are doing. The criterion is always valid, because policy contracts are not all the same: even when they insure the same risk, two contracts can contain very different guarantees, figures and exceptions.

This is all the more true for the life insurance sector. There are no “pre-filled” life insurance contracts that are valid for everyone: each must be adapted to the family, financial and professional situation of the person concerned.

The first step we must take before taking out life insurance is to understand what kind of need we want to work on.

In other words: what do we want to insure?

In this article we will explain how life insurance policies work, how many are they and what they are for. This information will be useful for you to independently manage the different phases of an important purchase like this:
– formulating requests clearly for any consultant, bank or insurer;
– evaluation of the policy in all its components, without stopping at the “lowest price”;
– planning of your economic situation even in the long term.

How many types of life insurance are there?

We can divide life insurance into four categories:

– Temporary Case of Death (TCM)

– Pension plans

– Capitalization contracts

– Consumer credit insurance

Each category has different dynamics and purposes.

All insurance companies offer these products, but each does so with different penalties, constraints, times and costs that it is good to learn to recognize.

The Temporary Life Insurance Policy (TCM)

This policy is the “classic life policy”, that is the one which returns a certain sum to the beneficiary in the event of the death of the insured .

In this sense it is the easiest policy to understand and evaluate, because it has fewer variables than the others.

The operation is similar to that of non-life insurance, and like that it is a security measure that essentially represents a cost, rather than an investment: it is only worth paying for under certain conditions.

Let’s see which ones.


From the comments found online and from those heard at the bar, there is some confusion as to the meaning of this coverage.

This policy is not to be thought of as a “compensation” for those affected by a loss; instead it represents a lifeline for those who economically depended on the deceased person .

Attention, because the Tcm is not a health policy : although it has some important conditions concerning cases of illness or disability, this is not its main purpose.

Specifically, this policy defines the economic value of the insured person: in the event of death, the persons who were dependent on him or her are paid this value.

Before buying, it is therefore essential to understand what economic loss would correspond to the loss of the insured.

TCM is a policy expressly dedicated to those who contribute financially to the subsistence of others:

– Who has dependent children;

– Unmarried couples, as individuals mutually excluded from their respective hereditary axes;

– Who takes care of the parents, perhaps keeping them in a retirement home or paying them a caregiver.

Of course, it is a policy that can also make sense if a person without economic dependency ties wants to leave a sum to someone in particular. In this case, however, there are also other options, sometimes more adequate, such as capitalization policies; as mentioned above, it is always a question of evaluating the particular needs of each one to find the best solution.

From here we start to make economic considerations, which we explore in more detail on the page dedicated to the TCM policy .

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Capitalization contracts

The so-called “provisioning policies” are capitalization contracts , insurances very different from the traditional ones that cover damages: while the latter in fact guarantee compensation in the event of a certain eventuality (the “accident”), the provision policies serve to build a capital over a certain time horizon.

One of the great opportunities of this type of provisioning plans is the possibility of investing even small amounts, and therefore being within the reach of any portfolio .

In practice, these products are not insurance in the strict sense, and in fact they can also be sold by banks and financial advisors.
Rather, it is a question of forms of saving or investment that allow us to use our money in different types of funds, which accrue interest, in different ways.

In a nutshell, the contracts of the capitalization policies establish the details of the agreements between the insurance company and the contracting party:

– Amount of the amount that the contractor will pay;

– Frequency of payments;

– Duration of payments;

– Methods and quantities of capitalization.


This type of product is ideal for those who want to keep their money safe in the long run.
Taking out a capitalization policy means starting a savings path that will result in the liquidation of a sum in the form of annuity or capital.

Regarding these products, it is important to understand that they only make sense in a long-term time horizon: those looking for fast returns, even on an annual basis, are looking for something different from these products.
Those who want to learn more can consult our page on investment policies.

Pension plans

The so-called Individual Pension Plans, or Pip , are also part of the life insurance sector . These plans are also called “supplementary pensions” or “supplementary pensions”.

A pension plan is used to obtain a private annuity to supplement the pension paid by INPS.

Also in this case, as in the case of capitalization contracts, it is not a policy that serves to reimburse any damage: it is rather a form of personal pension that covers an area that the public pension is no longer able to guarantee. as in the past.

Specifically, a Pip provides for the periodic payment of a certain sum to the insurance company, which will return it in the form of a life annuity starting from retirement age .

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For most of us, retirement will be the only income we will have when we stop working. The INPS, but also other portals such as that of Sole24ore, provides the “Pension calculation”, a tool to understand when we will retire and how much we will receive.

Will this income be enough to make us live as we did when we had employment income?
The pension plan is a fundamental policy for those who answer this question in the negative.

In any case, the reasons for a pension plan can also be savings, because a Pip allows you to immediately save a share of income taxes.

To learn more about the benefits of pension plans and the different opportunities they offer, you can consult our page on supplementary policies.

Consumer credit policies

Consumer credit policies are policies related to purchases made with a loan or mortgage.
These are special policies that have the objective of essentially protecting the credit of the company that provides the loan or mortgage .

In some cases, subscribing to these policies is mandatory; in other cases it could be superfluous, because the buyer may already have the coverage required by the loan in place in his private policy.

Generally, the policy that deserves more space in this sense is certainly the life insurance policy for the mortgage, whose characteristics are detail in the relevant page.

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