There are THREE basic forms of LIFE ASSURANCE.

They are:-

Term Assurance
Endowment Assurance
Whole of Life Assurance

Term Assurance
Term Assurance is the least costly of the three basic types. Term Assurance Premiums do not contain any investment element. The premium merely covers the risk of death and the expenses of the life office.

In return for a series of regular premiums a Term Assurance policy will pay out a lump sum of money if death occurs during a chosen term of years. If the policyholder does not die during the term but lives to the end of the term the contract ceases and no money is due to the client nor is there any return of premiums.

Term Assurance is like car insurance - if you don’t have a claim your premium is “lost”.

The client simply pays to cover the risk of his/her dying within a certain term.

Endowment Assurance
An endowment is basically an investment policy. The premium contains all three factors - ‘protection’, ‘expenses’ and ‘investment’ but it is the investment content which makes up most of the premium.

Endowment Assurance works in roughly the same way as the Term Assurance, i.e. if death occurs within a chosen term then the lump sum is paid out. However, where the Endowment differs is that at the end of the contract, (if the client has not died), a lump sum is also paid out. Thus it is certain that at some point in time the lump sum will be paid. To fund this certain payment, the life office must invest money over the term of the policy - the portion they invest is the investment portion of the premium.

Since there is this investment element in the premium, should the policy be stopped for any reason before the end of the term, except in the case of death, then a cash payment will be made of a proportion of the investment elements paid in. This is called a surrender (or encashment value).

Should the surrender occur in the early years of the policy life, the value of it will be very small compared with what has been paid in premiums. This is so because the life office has certain expenses to meet, e.g., The cost of setting up and issuing the policy document and salary plus commission to the salesman. The life office aims to recoup these expenses by taking back a little of each premium, i.e. the expense loading.

Whole of Life Assurance
Unlike either Term Assurance or Endowment Assurance, a Whole of Life Assurance is a permanent policy, i.e. it lasts for the whole of one’s life.

Premiums are paid right up until death but there can be Whole Life contracts called Limited Premium Whole Life where premiums cease at a specific age, usually 65 or 80, although the contract itself continues until death.

Since there is no need to fund at quite so high a level with Whole Life as there is with the Endowment, because the sum assured is paid out on only one eventuality and not two, the investment element in the premium is less than in the Endowment premium.

The variations on Whole Life are the same as on Endowment, i.e. Non-Profit, With-Profit and Unit-Linked.