Life assurance is a hybrid of insurance and investment. Due to the presence of the investment element, life assurance is also considered as a “life insurance” policy in which the policyholder is guaranteed a payment benefit at the end of the policy term. In this policy, insurance companies have the freedom to invest the cash amount. They then add a portion of the investment returns accrued over the period to the value of the policy at the time of the payout. The value of the investment element is dependent on:
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The performance of the investment made by the insurance company
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Time period for which premium has been paid
Unlike a life insurance policy, life assurance can be cancelled earlier than the end of its designated term period or death of the insured. Upon cancellation, the policyholder will receive an encashment value, which includes an investment bonus.
Life Assurance: Types
A life assurance policy can be of two types:
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Level TermAssurance: Also called temporary life assurance, it provides coverage for a specific number of years at a rate specified by the insurer. In the event of the policyholder outliving the policy term, the insurance will expire. At the end of the term, however, the policyholder will receive the investment value accrued over the years. If the policyholder dies before the end of the term, his beneficiaries will receive either the guaranteed minimum sum or the accumulated value of the annual investment bonuses, whichever is higher.
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Permanent Life Assurance: This form of life assurance policy remains in force till the policyholder dies. Although usually this insurance is payable at the time of the policyholder’s death, it can sometimes pay for terminal or critical illnesses, based on the terms agreed upon with the insurer at the start of the policy.
Life Assurance: Surrender and Cancellation
It is possible to access the cash benefit of a life assurance policy in advance by either surrendering the life assurance policy or withdrawing the money. However, insurance companies usually place a penalty for early withdrawal. Meanwhile, an insurer also has the right to cancel a life assurance policy if there is proof of fraud on the original document.