Life Assurance
Core concepts
Life assurance pays a lump sum on death (whole of life) or on death within a fixed term (term assurance). Candidates must distinguish term assurance (pure protection, no maturity value), whole of life (guaranteed payout eventually, higher cost), endowment (pays on death or survival to maturity), and unit-linked versus with-profits contracts. Understand sum assured, premium, surrender value, paid-up policy, and the roles of the policyholder, life assured, and beneficiary. Know that insurable interest must exist at inception, and that non-disclosure or misrepresentation can void a policy.
Traps
Questions often confuse the life assured with the policyholder (they may differ). Watch for suicide clauses (usually excluded for a period, often 12–13 months), cooling-off periods, and the difference between assignment and nomination. Another trap: a trust removes the payout from the estate for inheritance tax, but does not change the underwriting.
Rule of thumb
Term assurance is cheapest per unit of cover; whole of life is the most expensive. If asked which product provides protection at lowest cost for a fixed period, the answer is normally level term assurance.
Worked example
A 40-year-old takes a 20-year level term policy for £200,000. If they die in year 5, the estate/beneficiaries receive £200,000. If they survive 20 years, the policy pays nothing - this is the defining feature of pure term cover.