Life insurance or life assurance is a contract between the policyholder and the insurance company for a set amount of cover over a set period of time. The only variance to this is mortgage protection life insurance where the sum assured decreases at a set amount each year, the premium remains level.
The life insurance company agrees to pay a sum of money (the sum assured) upon the insured’s death. In return, the policyholder agrees to pay the regular life insurance premium.
The specific uses of the terms “insurance” and “assurance” are sometimes confused. “insurance” refers to providing cover for an event that might happen (car insurance accident), while “assurance” is the provision of cover for an event that is certain to happen (death).
Life insurance, or death insurance, policies are pure protection policies, they provide life insurance and do not have any cash value at any stage. You pay the monthly premium for the life insurance cover required and may cancel at any time.
Life insurance plans generally have fixed and guaranteed premiums for the life of the policy although some insurance companies do offer reviewable or unit-linked premiums in some circumstances. Where the life insurance sum assured decreases each year the premium is averaged over the policy term and the policyholder pays a fixed and level premium throughout.
Life insurance policies are perfect to protect a known amount over a fixed period of time. A mortgage or commercial loan for example could easily be covered by a death insurance policy.