subject: Different Types of Life Assurance Policies [print this page] It is important to know some things about life assurance policies. The policies can be broadly divided into two categories. These include term policies and several variations of whole life policies. In case of whole life policies a pure term insurance is combined with an investment product in order to build cash value.
In case of a life assurance policy, a contract is signed between an insurer and the policy owner by which the former is bound to pay a certain amount of money at the death of the insured individual or in case the insured suffers from a critical illness. The money, however, is not paid from the insurer's pockets and is the money deposited by the insured from time to time.
As far as term insurance is concerned, there are some factors that need to be considered. These include the premium that needs to be paid, the length of coverage or the term and the face amount or the total protection amount. Though in most countries life insurance and life assurance are considered to be the two sides of the same coin there are certainly some differences between the two.
Life insurance also has an investment element attached to it. But in case of a life assurance policy there is no such scope for investment. If the policy holder expires during the term of the insurance, in that case a substantial sum is paid to the beneficiary. If the individual fails to pay the premium amount, then the policy is invalidated mid term.
There are different types of life assurance policies. These include renewable term assurance, decreasing term assurance, increasing term assurance, index linked term assurance and convertible term assurance.
1) Renewable term assurance: This form of a policy gives the policy holder the opportunity to renew the insurance after it has expired.
2) Decreasing term life assurance: This implies that the guaranteed sum of money decreases steadily over the course of the term. This assurance policy is generally used to cover reducing balance of outstanding payments for a mortgage loan.
3) Increasing term assurance: This mode is used to cover up for the effects of inflation during the insurance term by offering a higher value than the promised sum.
4) Index Linked Term Assurance: This allows both the sum and premium amount to be increased along with the Retail Price Index.
5) Convertible Term Assurance: This may also be referred to as hybrid life insurance that offers an opportunity for transforming a normal level term insurance to endowment or investment insurance or whole life cover insurance.
No matter which of the life assurance policies you choose, it is important to keep in mind certain factors. The terms and conditions specified for each of the policies is different. Therefore, you need to read the offer document very carefully before making any investments or before signing any contract. You may also be asked to go for a health check up prior to signing up for life assurance policies. In that case, the amount initially decided upon as premium may be increased given your state of health.
