Nature of the Contract

The actual form of the life insurance policy has not changed a great deal over the years. The policy is a contract between the policyholder and the company, made on the basis of the proposal form in which the prospective policyholder has to give such information as the company may require (accuracy is essential here if the contract is to be valid). In return for the payment of the specified premiums, the company guarantees to pay the sum assured plus, where relevant, bonuses, to the policyholder (or whoever he wishes to name) at the specified maturity date or on the policyholder's earlier death.

The difference between life insurance and general (motor, household and other risks) insurance is that, having made the contract, the company is bound by it and cannot refuse to accept future premiums if, say, the policyholder's health deteriorates.

Life insurance is a longterm contract, whereas general insurances are renewable at the option of both parties and the premium rate may be adjusted as the insurer thinks fit.

There are certain legal restrictions on the capacity to be insured.

One may insure the life of another person only if he has a financial interest in that person's death or survival.

This condition used to be applied very strictly, to the extent that a man might not, for example, insure the life of his father. However, this rule is now more liberally interpreted and some offices would allow a man to insure the life of his father to provide for the CTT that would become payable on his father's death. Unless some similar financial interest is established, a parent may not insure the life of a child (except under certain industrial assurance policies to provide for funeral expenses), but a lender may insure the life of his debtor, since he stands to suffer a loss if the debtor dies before repaying the loan.

One relatively modern innovation in life insurance is the appearance of policies designed specifically for the needs of women. The bulk of traditional policies were designed with the male breadwinner in mind, but changing economic and social conditions have led not only to women having independent careers but also to a rise in the divorce rate. The importance of providing life cover for a wife, whether working or not, is not always appreciated: there are few husbands who would not have difficulty in bringing up a young family without their wives, but women have been far quicker to encourage their husbands to take out life insurance cover than men have been to realise their own dependence.


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Buying the Right Type

These two types of policy clearly have different uses and applications, and the most important decision in life insurance is to buy the right type for your needs. Broadly speaking, at the younger ages when family responsibilities are heavy (from marriage through to when children become independent) protection is more important, whereas in the later stages of working life investment becomes the priority. The structure of the website follows this pattern, starting with the pure protection type of policy and moving through policies designed for investment and house purchase to those more relevant in retirement... see: Buying the Right Type


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