Distinguish between the following pairs of terms used in insurance: (a) Third party and comprehensive policy (b) Whole life and endowment policy (c) Insuran...

Answer Details

(a) Third party policy vs Comprehensive policy

A third party policy covers only the loss, injury or damage suffered by another person (the third party) caused by the insured, not the insured's own vehicle or injuries. A comprehensive policy covers a wider range of risks, including damage to the insured's own vehicle, injury to the insured, and loss or damage to the third party.

(b) Whole life policy vs Endowment policy

Under a whole life policy, premiums are paid throughout the insured's lifetime and the sum assured is paid only on the death of the insured, to his beneficiaries. Under an endowment policy, premiums are paid for a fixed period, and the sum assured is paid at the end of that period if the insured is still alive, or earlier to beneficiaries if he dies before it matures.

(c) Insurance vs Assurance

Insurance covers risks that may or may not happen, such as fire, theft or accident, and the insured is only compensated if the event occurs (principle of indemnity). Assurance covers an event that is certain to happen but whose timing is uncertain, such as death, so payment is bound to be made sooner or later (life assurance).

(d) Premium vs Compensation

A premium is the periodic sum of money paid by the insured to the insurer to keep the policy in force. Compensation (indemnity) is the money paid by the insurer to the insured to make good the loss when the insured risk actually occurs.