What is Life Insurance?
Life insurance (assurance) is taken to cover funeral expenses, provide for dependants after death, or provide for retirement.
Reasons for Taking a Life Policy
- Provides for funeral and death expenses.
- Provides money for the policyholder’s family or children after their death.
- Can be used as collateral security for a bank loan.
- Is a means of savings for the policyholder.
- Provides a way to repay outstanding loans in the event of death.
Insurance vs Assurance
| Insurance | Assurance |
|---|---|
| Covers property | Covers life |
| Deals with probabilities (may or may not occur) | Deals with certainties (must occur eventually) |
| An indemnity contract | A non-indemnity contract |
| Not a means of savings | Is a means of savings |
Types of Life Assurance Policy
- Whole life policy: compensation is given to the next of kin after the assured’s death, to cover funeral expenses.
- Term policy: covers the assured for a specific, non-renewable period.
- Family income policy: ensures the assured’s children receive a regular income if they die.
- Special policy: covers a range of events, such as the lives of workers.
- Endowment policy: a dual-purpose policy paying a fixed sum on a set date, or on death, whichever comes first.
