Life Insurance & ILP Basics

A life insurance policy is a contract in which the insurer promises to pay a benefit (the sum assured / sum insured) on the occurrence of an insured event — typically the death of the life assured, and in some products also survival to a stated age or maturity date — in return for premiums paid by the policyholder.

The core purpose is PROTECTION: replacing lost income, clearing debts, or providing for dependants if the life assured dies. Some policies also build a savings or investment element on top of that protection.

Key terms used throughout: the life assured is the person whose life is covered; the policyholder (policy owner) owns the contract and pays premiums; the beneficiary receives the payout. The premium is the price of the cover; the sum assured is the amount payable on a valid claim; the policy term is how long cover lasts.

A useful distinction is between PURE PROTECTION products (cover only, no savings value) and products that combine protection with a savings or investment build-up (whole-life, endowment and investment-linked policies).

Term insurance provides PROTECTION ONLY for a fixed period (the term). If the life assured dies within the term, the sum assured is paid; if the policy runs to the end of the term with no claim, cover simply ends and nothing is paid.

Because there is no savings or investment element, term insurance has NO cash/surrender value (or only a negligible one). It is the simplest and, for a given sum assured, generally the CHEAPEST form of life cover.

Common features and variations:

• •Level term — the sum assured stays constant over the term.
• •Decreasing term — the sum assured falls over time, often used to match a reducing debt such as a mortgage.
• •Renewable / convertible options — the ability to renew at the end of the term, or convert to a permanent policy, usually without fresh medical evidence.
• •Riders (e.g. critical illness, total and permanent disability) can be attached to widen the cover.

Term insurance suits a defined, time-limited need — protecting a family while children are dependent, or covering a loan — where the priority is maximum protection per dollar of premium rather than building value.