There are three people involved in a death insurance policy:
- The insurance company
- The life assured (or lives assured)
- The policyholder
The insurance company
The insurance company takes on the risk of paying out the sum assured should one of the lives assured die during the policy term. In return the policyholder must pay the premium each and every month for death insurance cover to continue.
The life assured (or lives assured)
These are the people who are actually insured under the life insurance plan. If one of these people dies then the policy pays out. Only life assured’s have to provide medical details to the death insurance company when they apply.
The policyholders are the people who own the policy. They are responsible for paying the premiums and will receive any payout on death of a life assured. Policy holders do need to provide their contact details to the insurance company and will need to sign the application form. There needs to be insurable interest between the policyholder and life assured. ie there must be a financial loss to the policyholder on death.
For most death cover policies the lives assured and the policyholder are the same. The lives assured are the people protected under the plan and the policyholders are the ones who will receive the payout should the lives assured die.
A “life of another” life insurance policy means that the policyholder is different to the life assured. It could be the wife insuring her husband in the event of his death. By being the policyholder, the wife will receive any death payout that much quicker. Life of another policies are also used in keyman insurance where the company may take out death insurance on one of its key employees.