Historical Context
The concept of life insurance dates back to ancient civilizations where communal societies would gather funds to support the family of a deceased member. Modern life assurance practices began in the 17th century, with the establishment of insurance companies that provided financial support in exchange for premium payments. The term “life assured” specifically refers to the person whose life is covered by the assurance policy.
Types/Categories of Life Assurance
- Whole Life Insurance: Provides coverage for the insured’s entire lifetime with fixed premiums and a guaranteed death benefit.
- Term Life Insurance: Offers coverage for a specified period, typically 10, 20, or 30 years, with no payout if the life assured outlives the term.
- Endowment Policy: Combines life coverage with savings, providing a lump sum on maturity or death.
- Unit-Linked Insurance Plans (ULIPs): Includes investment options linked to the stock market along with life coverage.
- Group Life Insurance: Covers a group of people, often offered by employers to their employees.
Key Events
- 1843: The formation of the UK’s first mutual life insurance company, Scottish Widows.
- 1875: The establishment of Prudential Mutual Assurance Investment and Loan Association.
- 1983: Introduction of Unit Linked Insurance Plans in the financial market.
Detailed Explanation
Mathematical Models
Premium calculations for life assurance policies often utilize actuarial models. The Expected Present Value (EPV) formula is common:
Where:
- \(D_t\) = Death benefit payable at time \(t\)
- \(V_t\) = Value of premiums paid up to time \(t\)
- \(i\) = Interest rate
- \(t\) = Time period
Charts and Diagrams
graph TD;
A[Policyholder] -->|Pays Premiums| B[Insurance Company]
B -->|Issues Policy| C[Life Assured]
C -->|Covered Life| D[Beneficiary]
D -->|Receives Death Benefit| E[Upon Claim]
Importance and Applicability
Life assurance is vital for financial planning and risk management. It provides peace of mind by ensuring that the life assured’s dependents are financially protected in case of untimely death. It’s applicable for:
- Individuals with dependents
- Mortgage protection
- Business partners to cover key persons
- Estate planning
Examples
- Individual Scenario: John takes a whole life insurance policy with his wife as the beneficiary. Upon John’s passing, his wife receives the sum assured.
- Corporate Scenario: XYZ Corporation takes a group life insurance policy for all employees, providing financial support to families of deceased employees.
Considerations
- Health: Premiums are influenced by the life assured’s health condition.
- Occupation: High-risk jobs may lead to higher premiums.
- Lifestyle: Smoking, drinking, and other lifestyle factors affect premium rates.
- Sum Assured: The amount of coverage needed influences premiums.
Related Terms with Definitions
- Policyholder: The person who owns the insurance policy.
- Beneficiary: The individual designated to receive the death benefit.
- Premium: Regular payments made by the policyholder to the insurer.
- Underwriting: The process of evaluating the risk associated with the life assured.
Comparisons
- Term vs. Whole Life Insurance: Term insurance is for a fixed period and costs less, while whole life insurance offers lifetime coverage and accumulates cash value.
- ULIP vs. Endowment: ULIPs offer market-linked returns while endowment policies provide guaranteed returns.
Interesting Facts
- The world’s first life insurance policy was issued on June 18, 1583, in London, insuring the life of William Gibbons.
- Life insurance policies can now include riders for critical illness and accidental death benefits.
Inspirational Stories
- Hetty Green: Known as the “Witch of Wall Street,” Hetty used life insurance policies effectively as part of her financial strategies in the 19th century.
Famous Quotes
- “The first wealth is health.” – Ralph Waldo Emerson
Proverbs and Clichés
- “Better safe than sorry.”
- “Hope for the best, prepare for the worst.”
Expressions
- “Covering your bases”
- “Taking out a policy on someone”
Jargon
- Rider: An add-on to the primary insurance policy.
- Lapse: The termination of a policy due to non-payment of premiums.
Slang
- Dead Peasant Insurance: Colloquial term for corporate-owned life insurance.
FAQs
Q: What is the difference between life assured and policyholder? A: The life assured is the person whose life is covered by the insurance policy, whereas the policyholder is the owner of the policy who pays the premiums.
Q: Can the life assured be changed during the policy term? A: Generally, the life assured cannot be changed once the policy is issued, as it’s based on individual risk assessment.
References
- “Life Assurance Principles and Practice,” by Harry Anson Finney
- “Risk and Insurance,” by Mark S. Dorfman
Summary
Life assured is a crucial term in the insurance industry referring to the individual whose life is insured by the policy. Understanding this term helps in comprehending various insurance products, their calculations, importance, and applications in financial planning. By providing financial security and peace of mind, life assurance policies continue to be an essential element in personal and corporate risk management.
