Our life is full of uncertainties and a risk that’s why we are always worried about our future life assurance is the solution to overcome all the uncertainties.
Special features of life assurance
The provision of life assurance is a quite different process from the provision of non-life insurance. The main distinction is that in life assurance the event being assured is certain to happen in the case of those policies paying on death, or is scientifically calculable in the event of policies not paying a benefit on death.
Premium payments
As we saw under "Actuarial principles" above, premiums are payable by level amounts throughout the period of the policy. This means that each person pays the same amount throughout, that amount being determined by his age on effecting the policy. Premiums can be paid annually, half-yearly, quarterly or monthly and are often met by standing orders with banks whereby the policyholder instructs his bank to make the appropriate payments at the right times.
Participation in profits
Life assurance companies value their assets and liabilities at regular intervals, some every year and others every three years. This valuation of their operation allows them to determine if any surplus exists after calculating all future liabilities and other contingencies. Should such a surplus exist it is distributed among those policyholders who have "with profits" or "participating" policies.
Surrender values
When a person no longer wishes to continue his policy or for some reason cannot continue the premiums he can ask for the surrender value. He ceases payment and receives, not a proportion of the sum assured, but a proportion of the premiums. Not all policies allow a surrender value but where one is possible it may be less than the aggregate amount of all premiums paid, unless the policy has been in force for
many years, when the surrender value may be more than the premiums paid.
Paid-up policies
An alternative to the surrender value with some policies is the paid-up Policy. In this case the premiums cease; the policy continues but on maturity a smaller sum than would originally have been paid will be due to the policyholder. Depending on the policy and the company concerned these paid-up policies mayor may not continue to participate in Profits.
Tax relief
When the policyholder is paying income tax he may be entitled to income tax relief on the life assurance premiums if the policy was taken out before March 1984. Relief is granted provided:
(a) the policy qualifies for tax relief; the rules for qualification are fairly complex but the majority of policies were eligible;
(b) the policy is on the life of the income tax payer or that of his or
her spouse; and
(c) the premiums are paid by the income tax payer or his/her spouse.
Prior to 6th April 1979 a person paid the full, gross, premium and subsequently received the appropriate tax relief in the form of an allowance included in his tax coding. Following the Finance Act 1976 the system changed from 6th April 1979 and now each person pays the net premium, after tax relief, to the insurance company and the company claims the balance, representing the tax relief, from the Inland Revenue. The rate of relief is 15 per cent of gross premium payable subject to premiums not exceeding £1,500 or one-sixth of income, whichever is the higher. Those who not taxpayers benefit from this system as everyone, regardless of whether they pay income tax or not, enjoys the benefit of the relief.
Since March 1984 this relief is no longer allowable on new contracts.
Investments
We have already identified the life assurance industry as being of con-siderable size. This was evidenced by the number of policies in force and the value of premiums paid each year. These vast amounts of money are held by companies to meet future liabilities and, are termed long-term funds. The total value of such funds for long-term assurance in 1982 was some £82,047 million.
These funds do not lie dormant waiting on claims coming in. They are invested to provide income for the companies and so assist Policy holders and shareholders. Not only do these two groups benefit but the country as a whole benefits as the funds are invested in many forms that encourage expansion of industry and promote job employment. A look around any town or city will show how many new building projects are being sponsored by life assurance companies.