Life Assurance is one important branch of insurance which is taken as a protection against loss caused by the death of a person. This policy covers human beings and not properties. The risk covered here will inevitably occur but the time of occurrence is what is not known.
If the life assured was suffering from a serious illness at the time of taking out a policy unknown to the assurance company, the latter may disclaim liability.
There are four main types of life assurance, namely: Term assurance, Whole life assurance, Endowment assurance and Annuities.
The Main Types of Life Assurance
- Term Assurance: This is the oldest form of assurance policy. In this policy, payment will be made to the assurer if the life assured dies within the specified period. We have different types of term assurance. These are: decreasing term, convertible term and family income benefit assurance. It is the cheapest form of assurance.
- Whole Life Assurance: This type of life assurance will last for the life time of the life assured, and the sum assured is payable only at death. The assured will pay premium throughout the duration of his life.
- Endowment Policy: This is a type of policy which provides for the sum assured to be paid either after a fixed number of years or at death, depending on which one occurs first. Endowment assurance is a convenient and profitable way of preparing to meet some future financial commitment such as old age.
- Annuities: This is a form of pension in which an insurance company, in return for a certain sum of money (paid in a lump sum or by instalments), agrees to repay this money plus the investment income that it is able to earn over the expected life time of the investor or for a specified period.
Reasons for Taking Life Assurance
- Lump Sum on Retirement: The life assurance policy provides for a lump sum of money on retirement, and it is a means of saving for the future.
- Provides for Permanent Disability: The endowment policy makes provision for permanent disability.
- Serves as Collateral Security: Life assurance policy can be used as a collateral security to obtain loan from banks.
- Source of Loan Repayment: In the event of death, it can provide for loan repayment.
- Provides for Dependant: Life assurance policy provides for one’s dependant in the event of death.
- Provision for Repayment of Capital: It makes provision for the repayment of capital on the death of a partner.
- Provision for Old Age: This can be used as a way of providing for old age.