Distinguished from insurance in that assurance does not depend upon a possibility. It is a payment of premium at regular intervals in return for a fixed sum which will become payable at a stated time. The obvious examples are life and endowment assurance. With life assurance, payment becomes due on the death of the life assured. With endowment assurance, payment becomes due at a stated date. It is common to combine both in a life and endowment policy. Certain companies deal only with life assurance. As an assurance contract is one of the category known as uberrimae fidei, all facts relevant to the risk taken by the company must be ited. Some companies often insist on a Tiedical examination. If not, this does not always prevent them disclaiming liability the claimant was suffering from some «riouscomplaint (unknown to them) at the time the policy was taken out. Policies often contain long and complex clauses limiting liability. Care should be taken to read these before the contract is signed.
Assurance policies may be with or without profits. A policy with profits entitles the holder to a share in the profits of the company during the term of the policy. This can amount to a considerable sum. Premiums on these policies are of course higher. In comparing one company with another it should be remembered that those who offer the higher profits possibly charge the higher premium. It is usually a question if whether one wishes to pay more now for a higher sum in the future.
There is an increasing tendency for assurance companies to offer what are known as equity linked policies. The premiums are then invested in what is equivalent to a unit trust. The idea is to combat inflation and compete with unit trusts offering assurance policies.
Assurance policies are often used in connection with house purchase. As with most contracts of assurance, the assured must have an 'insurable interest', e.g. it is not possible for A to take out a policy on the life of B unless A stands to suffer loss. His claim ivill be restricted to the amount of the loss. The interest need only exist at the time the policy is taken out. A creditor can insure his debtor and a wife has an interest in the life of her husband and vice versa, but a parent has not normally an interest in the life of a child nor a child in the parent (save where a parent is supporting a child),
If a man takes out a policy for the benefit of his dependants the money will be treated as a separate estate for duty purposes. This could be a considerable advantage. The advantage, however, has been modified considerably by the Finance Act 1968. In order now to avoid aggregation, the policy must have been irrevocably taken out in the name of another and the premium should have been part of normal expenditure. The gifts inter vivos rule may also apply.
Assurance companies offer variously named policies of an endowment nature for. e.g., educational purposes.
Profits of assurance companies are determined by quinquennial valuations. The profit is the difference between the value of the assets and an estimate of the probable liability to the policy holders.
|Reference: The Penguin Business Dictionary, 3rd edt.|