Life Assurance
Core concepts
Life assurance is a long-term contract paying a sum assured on death (whole of life) or on death within a fixed term (term assurance). Candidates must distinguish term, whole of life, endowment, and unit-linked/investment contracts, and understand sum assured, premium, surrender value, paid-up policy, policy loan, and nomination/beneficiary arrangements.
Key technical ideas: underwriting and disclosure (duty to disclose material facts; non-disclosure and misrepresentation can void a claim), free-look/cooling-off periods, grace periods for late premiums, incontestability, and suicide clauses. Also know the difference between assignment (legal transfer of rights) and nomination (direction of benefit), and the tax treatment of proceeds versus premiums.
Traps in questions
- Confusing term (no maturity payout) with endowment (survival benefit).
- Assuming a paid-up policy retains the original sum assured - it is usually reduced.
- Mixing surrender value (early encashment) with maturity value.
- Forgetting that cooling-off refunds premiums less any costs, not necessarily the full amount.
- Treating nomination as automatically overriding a will in every jurisdiction - often it does, but wording matters.
Worked example / rule of thumb
Rule of thumb: Premium = mortality cost + expenses + (for savings products) reserve/investment component. For a pure term policy, almost all premium funds mortality and expenses, so there is little or no cash value. If a question asks why term premiums are lower than whole-of-life at the same age and sum assured, the answer is the absence of a savings/reserve element and the defined expiry.
Always check when cover starts (acceptance vs. first premium) and when it ends (expiry vs. non-payment).