Slide MGT305 Slide03

Insurance Companies and
Pension Plans
Chapter III

Life Insurance
• In life insurance contracts, the payments to the

policyholder depend-at least to some extent-on
when the policyholder dies.
• Life insurance is a contract where the event

being insured may never happen.
• Life assurance is a contract where the event

being insured is certain to happen in the future.

Term Life Insurance
• Term (temporary) life insurance lasts a

predetermined number of years.
• Insurance company makes a payment

equal to the face amount of the policy to
the specified beneficiaries if the
policyholder dies during the life of the
policy.

Term Life Insurance
• If the policyholder doesn’t die during the
life of the policy, no payments are made.
• The policyholder is required to make
regular monthly or annual premium
payments for the life of the policy or until
the policyholder dies (whichever earlier).

Term Life Insurance
• The face amount typically stays the same
or declines with the passage of time.
• The premium payments typically stay or
increase with the passage of time.
• A common reason for term life insurance

is mortgage.

Whole Life Insurance
• Whole (permanent) life insurance provides
protection over the whole life of the policyholder.
• The policyholder is required to make regular
monthly or annual premium payments until
death.
• The face value is paid to the designated
beneficiaries.

Group Life Insurance
• It covers many people under a single policy.
• Usually this type of insurance is purchased
by a company for its employees.
• It could be contributory where premiums
are shared by the employer and employee,
or noncontributory where the employer
pays the whole cost.