Life insurance or life assurance is a
contract between the policy owner and the insurer, where the insurer
agrees to pay a designated beneficiary an agreed sum of money upon the
occurrence of the insured person's or persons death in return for the
payment of a premium.
It is important to understand that the policy
owner or beneficiary may be different to the Insured Person, however in
such circumstances an insurable interest has to be determined, such as a
banks interest in the Insured Person following the provision of a loan,
or the interest of a dependent spouse on the earnings of a partner for
the financial security of the family.
To be a life policy the insured
event must be based upon the lives of the people named in the policy,
the Life Insureds. Life policies are legal contracts and the terms of
the contract describe the limitations of the insured events.
exclusions are often written into the contract to limit the liability of
the insurer; for example claims relating to suicide, fraud, war, riot
and civil commotion.
contracts tend to fall into two major categories: Protection policies -
designed to provide a cash benefit, typically a lump sum payment in the
event of a specified event such as death of a life insured. Investment
policies - where the main objective is to facilitate the growth of
capital by regular or single premiums which includes a death benefit
Types of Life Insurance
There are three principal types of Life Insurance: Term Life Cover Mortgage
Protection Whole of Life
Term life cover
is the simplest and one of the cheapest forms of life insurance
designed to provide a defined sum in the event of death of the life
insured during the term of the policy. If a life assured dies before the
end of the term defined within the policy, the sum assured is paid out
to the nominated beneficiaries. If the Life Insured does not die during
the term, no benefit is paid out and the policy ends. The premium and
the sum assured are normally fixed for the term.
Mortgage protection insurance
protection insurance policies are designed to pay a defined lump sum
directly to a lender to clear a mortgage or loan in the event of death
of the Insured Person.
The term of a Mortgage protection policy normally
corresponds with the term of the mortgage or loan. A Mortgage
Protection policy is not designed to provide a cash lump sum to an
Insured's dependants so separate life cover may be required if an
Insured has a dependant family.
A mortgage protection can be arranged
where the amount of cover, or sum insured reduces from year to year as
the amount outstanding on a mortgage or loan reduces. This is known as
reducing term cover and is the most common and the cheapest form of life
small number of insurers offer life policies that provide cover for the
entire life of the Insured person, or for as long as the premium
continues to be paid, and are know as whole of life policies.
less popular than other forms of life insurance, as the premium is
higher, and can increase at regular intervals. There are various types
of whole-of-life policy, but the most common is a unit-linked
whole-of-life. Part of the premium is invested in a fund. This fund is
expected to grow at a certain rate so that its value is high enough to
pay for the sum assured throughout the Insured's life. The fund value is
not guaranteed, so the premium may increase regularly in order to keep
the sum assured or policy benefit at the agreed level.
Costs, insurability, and underwriting
cost of insurance is determined by Insurers using mortality tables
which predict the life expectancy on an Insured Person. Other risk
factors considered are factors such as age, gender, smoking status, past
medical history, family history, alcohol consumption, body mass index,
occupation and hobbies. Underwriters will also need to determine the
purpose of the insurance.
The most common is to protect the owner's
family or financial interests in the event of the insurer's demise.
Other purposes include estate planning or, in the case of cash-value
contracts, investment for retirement. Bank loans or buy-sell provisions
with shareholders agreements are another common need for Life Insurance.
the insured's death, the insurer requires acceptable proof of death
before it pays the claim.
The normal minimum proof required is a death
certificate and the insurer's claim form completed, signed (and
typically notarized). If the insured's death is suspicious and/or the
policy amount is large, the insurer may investigate the circumstances
surrounding the death before deciding whether it has an obligation to
pay the claim.
The use of the term 'Insurance' compared with 'Assurance'
The specific uses of the terms "insurance" and "assurance" are
sometimes confused. In general, "insurance" refers to providing cover
for an event that might happen (fire, theft, flood, etc.), while
"assurance" is the provision of cover for an event that is certain to
Trying to compare the merit of one Life Insurance policy and
provider against another can be extremely confusing which is why we
would recommend any Private Client seek specific consultation with one
of our advisers before committing to purchase Life Insurance.
insureghana.com our team will refer you to first class experts in the
industry, providing you with competitive solutions to ensure they get
exactly what you are looking for at the best possible price. source:
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