Please enable JavaScript.
Coggle requires JavaScript to display documents.
Life assurance / insurance (Life insurance (Life insurance premiums depend…
Life assurance / insurance
Life insurance
Cover may be taken out by an individual on himself / herself or by one spouse on the other spouse or even a business partner, in this respect it would be necessary to demonstrate a financial relationship
The term of life insurance is usually 10 to 25 years
Contractual obligation between an insurance company and the insured period
Protects against the possibility of death for a specific period only
The purpose is to ensure that an individuals financial commitments are met in the event of death and usually a payment is made to any dependants should death occur within the period
The payment may be sufficient to repay a mortgage
The size of the potential payment, the term of the insurance and size of premiums will be decided at the outset
May be taken out when any dependants are young and the end of the term may coincide with a child's 18th or 21st birthday or the conclusion of university studies
Protects against something that might happen, not something that will happen
For a payment to be made, two conditions must be fulfilled: death and this death occurring within the term of insurance
Life insurance premiums depend upon a number of factors
Age
Sex
Health history
Amount of cover
Duration of cover
Number of insured persons
Smoker/non smoker
Generally the younger and healthier the insured is, the lower the premium will be. This will determine the amount of premiums to be paid
Cheaper than life assurance
It is not possible to resell, as there is no accrued value
Life assurance
A payout is guaranteed, whether to the assured person or to somebody else
People with dependants should make sure that in the event of their death, there will be financial security for those dependants
No fixed term and there is an element of investment
There is an assurance of a payment and the insured does not have to die to rigger this
If the individual does die, a guaranteed payment, possibly with bonuses, will be repaid
The size of the payout will depend on the sum assured, the performance of the assurance company and the number of years that the policy has been in force
If the individual survives to the end of the policy, there will be a payout. This may include various annual bonuses plus a terminal bonus
It is possible to sell an assurance policy either back to the assurance company or to a specialist broker, provided that sufficient value has been accrued
Endowment policies
A life insurance contract also known as an assurance contract, which pays a lump sum on maturity (after a specific term of years) or death
Actually savings products incorporating life assurance
Longer term investments and are often taken out in parallel with a mortgage and are for a defined period
At the end of an endowment policy, the insurance company will make a lump sum payment which is hourly more than sufficient to clear the mortgage liability
In the event of the death of the assured prior to the end of the term, the sum assured will be paid out
There are variants of endowments that are very similar to whole life policies - with profits and unit linked - and the principles are the same
The proceeds of a maturing endowment policy are free of tax
Because of the unclear nature of insurance companies products, faith in these types of investment has diminished in recent years, especially in the UK. There are a number of areas where criticism has been levied
Cost: whole life policies often attract critics because of the price differential between them and life insurance policies
Suitability: a policy whether insurance or assurance is not suitable for everybody. Individuals have differing circumstances and policies should reflect this. Choices need to be evaluated by prospective policyholders prior to making commitments. However such policies may be ideal for young families concerned about providing financial support for their family
Smoothing of returns: where an unusually high return in one year is spread over several years
The interrelationship between products
Underlying investment returns
Whole life policies
No fixed term, as long as the premiums are paid, a payment will be assured and made upon death
Assurance premiums are more expensive than life insurance premiums
The positive aspects of whole life policies are in respect of the with profits policies, where any profits are distributed and allocated to the policyholders in the form of bonuses. Once allocated they cannot subsequently be taken back
Fixed sum assured (non-profit or without profit
A specific amount paid out upon death
With profits
Linked to growth of markets
Unit linked
These are linked to the investment funds of the life assurance company, so the value of the policy can go down as well as up
Pays out whenever the person who is the subject of the policy dies