(a) What is endowment policy? (b) Differentiate between the following terms: (i) Third party and comprehensive motor insurance; (ii) • Death benefit and mat...

Answer Details

(a) Endowment policy

An endowment policy is a life assurance contract under which the insurer agrees to pay the sum assured either on the survival of the life assured to the end of a fixed term (maturity) or on his earlier death within the term, whichever occurs first. It therefore combines protection with saving, guaranteeing a payout to the policyholder if he lives or to his dependants if he dies.

(b) Differences

(i) Third party versus comprehensive motor insurance: Third party cover pays only for injury to other persons and damage to their property caused by the insured's vehicle; it gives nothing for the insured's own car. Comprehensive cover includes the third party protection and, in addition, indemnifies the insured for accidental damage, fire and theft affecting his own vehicle.

(ii) Death benefit versus maturity benefit: A death benefit is the sum paid to the named beneficiary if the life assured dies during the term of the policy. A maturity benefit is the sum paid to the policyholder himself if he survives to the end of the policy term.

(iii) Contracts of life versus non-life insurance: A life insurance contract is not a contract of indemnity; it pays a fixed agreed sum on death or maturity, because human life cannot be valued in money, and the risk (death) is certain to occur. A non-life (general) insurance contract, such as fire or motor, is a contract of indemnity; it pays only the actual loss suffered, the risk may or may not occur, and it is usually renewable yearly.